UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2009
or
p TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________to__________________.
Commission File Number: 0-20842
PLATO LEARNING, INC.
(Exact name of Registrant as specified in its charter)
Delaware | 36-3660532 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
10801 Nesbitt Avenue South, Bloomington, MN 55437
(Address of principal executive offices)
(952) 832-1000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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 p
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer p Accelerated filer x Non-accelerated filer p Smaller reporting companyp
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes p No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 24,156,314 shares of common stock, $.01 par value, outstanding as of August 31, 2009.
PLATO LEARNING, INC.
Form 10-Q
Quarterly Period Ended July 31, 2009
PART I. | ||
FINANCIAL INFORMATION | ||
Page | ||
ITEM 1. | Financial Statements: | |
3 | ||
4 | ||
5 | ||
6 | ||
ITEM 2. | ||
15 | ||
ITEM 3. | 23 | |
ITEM 4. | 24 | |
PART II. | ||
OTHER INFORMATION | ||
ITEM 1A. | 25 | |
ITEM 6. | 25 | |
26 |
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLATO Learning, Inc. and Subsidiaries | ||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
July 31, | July 31, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
REVENUES | ||||||||||||||||
Subscriptions | $ | 10,774 | $ | 9,247 | $ | 30,368 | $ | 25,691 | ||||||||
License fees | 1,328 | 3,353 | 3,338 | 7,113 | ||||||||||||
Services | 4,637 | 6,038 | 14,577 | 18,214 | ||||||||||||
Total revenues | 16,739 | 18,638 | 48,283 | 51,018 | ||||||||||||
COST OF REVENUES | ||||||||||||||||
Subscriptions | 4,095 | 4,593 | 12,165 | 14,058 | ||||||||||||
License fees | 611 | 1,540 | 1,467 | 4,060 | ||||||||||||
Services | 2,418 | 3,172 | 7,182 | 9,082 | ||||||||||||
Total cost of revenues | 7,124 | 9,305 | 20,814 | 27,200 | ||||||||||||
GROSS PROFIT | 9,615 | 9,333 | 27,469 | 23,818 | ||||||||||||
OPERATING EXPENSES | ||||||||||||||||
Sales and marketing | 5,969 | 6,657 | 17,460 | 21,182 | ||||||||||||
General and administrative | 2,209 | 2,258 | 6,504 | 7,909 | ||||||||||||
Software maintenance and development | 976 | 1,128 | 2,251 | 3,306 | ||||||||||||
Amortization of intangibles | 214 | 388 | 640 | 1,163 | ||||||||||||
Restructuring charges | - | 800 | - | 2,435 | ||||||||||||
Total operating expenses | 9,368 | 11,231 | 26,855 | 35,995 | ||||||||||||
OPERATING INCOME (LOSS) | 247 | (1,898 | ) | 614 | (12,177 | ) | ||||||||||
Other (expense) income, net | (63 | ) | (11 | ) | (48 | ) | 188 | |||||||||
INCOME (LOSS) BEFORE INCOME TAXES | 184 | (1,909 | ) | 566 | (11,989 | ) | ||||||||||
Income tax expense | - | 152 | - | 456 | ||||||||||||
NET INCOME (LOSS) | $ | 184 | $ | (2,061 | ) | $ | 566 | $ | (12,445 | ) | ||||||
NET INCOME (LOSS) PER SHARE | ||||||||||||||||
Basic | $ | 0.01 | $ | (0.09 | ) | $ | 0.02 | $ | (0.52 | ) | ||||||
Diluted | $ | 0.01 | $ | (0.09 | ) | $ | 0.02 | $ | (0.52 | ) | ||||||
WEIGHTED AVERAGE COMMON | ||||||||||||||||
SHARES OUTSTANDING | ||||||||||||||||
Basic | 24,106 | 23,881 | 24,052 | 23,825 | ||||||||||||
Diluted | 24,757 | 23,881 | 24,383 | 23,825 | ||||||||||||
See Notes to Condensed Consolidated Financial Statements. |
PLATO Learning, Inc. and Subsidiaries | ||||||||
(In thousands, except per share amounts) | ||||||||
July 31, | October 31, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 14,185 | $ | 20,018 | ||||
Accounts receivable, net | 17,751 | 6,834 | ||||||
Other current assets | 6,053 | 7,408 | ||||||
Total current assets | 37,989 | 34,260 | ||||||
Equipment and leasehold improvements, net | 2,698 | 3,589 | ||||||
Software development costs, net | 20,760 | 24,086 | ||||||
Identified intangible assets, net | 2,719 | 3,723 | ||||||
Other long-term assets | 3,203 | 3,309 | ||||||
Total assets | $ | 67,369 | $ | 68,967 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,305 | $ | 3,085 | ||||
Accrued compensation | 3,383 | 3,996 | ||||||
Other accrued liabilities | 2,371 | 6,909 | ||||||
Deferred revenue | 34,711 | 36,005 | ||||||
Total current liabilities | 41,770 | 49,995 | ||||||
Long-term deferred revenue | 13,859 | 8,916 | ||||||
Total liabilities | 55,629 | 58,911 | ||||||
Stockholders' equity: | ||||||||
Common stock, $.01 par value, 50,000 shares authorized; | ||||||||
24,216 shares issued and 24,156 shares outstanding at | ||||||||
at July 31, 2009; 24,046 shares issued and 23,988 | ||||||||
shares outstanding at October 31, 2008 | 242 | 240 | ||||||
Additional paid-in capital | 172,275 | 171,143 | ||||||
Treasury stock at cost | (319 | ) | (315 | ) | ||||
Accumulated deficit | (159,224 | ) | (159,790 | ) | ||||
Accumulated other comprehensive loss | (1,234 | ) | (1,222 | ) | ||||
Total stockholders' equity | 11,740 | 10,056 | ||||||
Total liabilities and stockholders' equity | $ | 67,369 | $ | 68,967 | ||||
See Notes to Condensed Consolidated Financial Statements. |
PLATO Learning, Inc. and Subsidiaries | ||||||||
(In thousands) | ||||||||
Nine Months Ended | ||||||||
July 31, | ||||||||
2009 | 2008 | |||||||
OPERATING ACTIVITIES: | ||||||||
Net income (loss) | $ | 566 | $ | (12,445 | ) | |||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Deferred income taxes | - | 456 | ||||||
Depreciation and amortization | 9,215 | 12,868 | ||||||
Stock-based compensation | 1,023 | 559 | ||||||
Other adjustments | (166 | ) | 105 | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (10,727 | ) | (841 | ) | ||||
Other current and long-term assets | 1,330 | (238 | ) | |||||
Accounts payable | (1,780 | ) | (1,967 | ) | ||||
Other current liabilities | (5,144 | ) | (686 | ) | ||||
Deferred revenue | 3,649 | (1,275 | ) | |||||
Total adjustments | (2,600 | ) | 8,981 | |||||
Net cash used in operating activities | (2,034 | ) | (3,464 | ) | ||||
INVESTING ACTIVITIES: | ||||||||
Capitalized software development costs | (3,362 | ) | (8,741 | ) | ||||
Purchases of equipment and leasehold improvements | (525 | ) | (318 | ) | ||||
Net cash used in investing activities | (3,887 | ) | (9,059 | ) | ||||
FINANCING ACTIVITIES: | ||||||||
Net proceeds from issuance of common stock, net of repurchases | 107 | 60 | ||||||
Repayments of capital lease obligations | (7 | ) | (22 | ) | ||||
Net cash provided by financing activities | 100 | 38 | ||||||
EFFECT OF CURRENCY EXCHANGE RATE CHANGES | ||||||||
ON CASH AND CASH EQUIVALENTS | (12 | ) | 26 | |||||
Net decrease in cash and cash equivalents | (5,833 | ) | (12,459 | ) | ||||
Cash and cash equivalents at beginning of period | 20,018 | 24,297 | ||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 14,185 | $ | 11,838 | ||||
See Notes to Condensed Consolidated Financial Statements. |
PLATO LEARNING, INC. AND SUBSIDIARIES
Note 1. General
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The October 31, 2008 condensed consolidated balance sheet data was derived from our audited financial statements at that date. Accordingly, these financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America. We have included all normal recurring and other adjustments considered necessary to give a fair statement of our operating results for the interim periods shown. Operating results for these interim periods are not necessarily indicative of the results to be expected for the full fiscal year. For further information, refer to the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2008.
Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of PLATO Learning, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Fiscal Periods
Our fiscal year is from November 1 to October 31. Unless otherwise stated, references herein to our third quarter relate to the three month period ended July 31.
Note 2. Summary of Significant Accounting Policies
General
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. We continually evaluate our critical accounting policies and estimates, and have identified the policies relating to the following areas as those that are significant to our financial statement presentation as they involve subjective or complex judgments:
· | Revenue recognition |
· | Capitalized software development costs |
· | Valuation of deferred income taxes |
· | Valuation of identified intangible assets |
At the end of fiscal year 2008, we completed our transition to a software-as-a-service business model in which substantially all of our products are now delivered on a hosted, subscription service basis. Based on the completion of this transition, and in accordance with EITF 00-03, Application of SOP 97-2, “Software Revenue Recognition”, to Arrangements That Include the Right to Use Software Stored on Another Entity’s Hardware, we have applied SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use” effective for the first quarter of fiscal year 2009. Under EITF 00-03, hosting arrangements in which customers do not have a contractual right to take possession of the software are service arrangements, and such software, subject to certain exceptions, is considered internal-use software subject to SOP 98-1. As a result of our application of SOP 98-1 in fiscal year 2009, we are capitalizing software development costs upon completion of the preliminary project stage rather than when technological feasibility is achieved, which we did for prior years pursuant to SFAS No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed” (“SFAS 86”). Application of SOP 98-1 also allows us to capitalize only direct costs of software development, rather than both direct costs and an allocation of indirect costs, which was allowed under SFAS 86.
There have been no other significant new accounting principles applied in these areas during the third quarter of 2009. For a more complete discussion of our accounting policies refer to Note 2 to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended October 31, 2008.
Income (Loss) per Share
Basic income (loss) per share is computed on the basis of the weighted average number of common shares outstanding during the period. Diluted income (loss) per share is computed on the basis of the weighted average number of common shares plus the effect of dilutive potential common shares outstanding during the period. Components of basic and diluted income (loss) per share were as follows (in thousands, except per share amounts):
Three Months Ended July 31, | Nine Months Ended July 31, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net income (loss) available for common shareholders | $ | 184 | $ | (2,061 | ) | $ | 566 | $ | (12,445 | ) | ||||||
Weighted average common shares outstanding | 24,106 | 23,881 | 24,052 | 23,825 | ||||||||||||
Dilutive effect of employee stock options and restricted stock awards | 651 | - | 331 | - | ||||||||||||
Common shares and common share equivalents | 24,757 | 23,881 | 24,383 | 23,825 | ||||||||||||
Income (loss) per share: | ||||||||||||||||
Basic | $ | 0.01 | $ | (0.09 | ) | $ | 0.02 | $ | (0.52 | ) | ||||||
Diluted | $ | 0.01 | $ | (0.09 | ) | $ | 0.02 | $ | (0.52 | ) |
Approximately, 1,976,000 and 2,624,000 stock options with exercise prices greater than the average market price of our common stock for the three months and nine months ended July 31, 2009, respectively, were excluded from the 2009 calculations of diluted income per share because they were antidilutive.
We incurred a net loss for the three and nine months ended July 31, 2008. Potential common shares in the amount of 2,616,000 and 2,728,000 were antidilutive and excluded from the calculation of diluted loss per share for those periods, respectively.
Recent Accounting Pronouncements
In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles a Replacement of FASB Statement No. 162” (“SFAS 168”). SFAS 168 establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with US GAAP. The Codification does not change current US GAAP, but is intended to simplify user access to all authoritative US GAAP by providing all the authoritative literature related to a particular topic in one place. The existing accounting standard documents will be superseded. The provisions of SFAS 168 are effective for our quarter ending October 31, 2009.
In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”). SFAS 167 modifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. SFAS 167 clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. SFAS 167 requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity. SFAS 167 also requires additional disclosures about a company’s involvement in variable interest entities and any significant changes in risk exposure due to that involvement. The provisions of SFAS 167 are effective for our fiscal year ending October 31, 2011 and are not expected to have a material effect on our consolidated financial statements.
In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140” (“SFAS 166”). SFAS 166 requires entities to provide more information regarding sales of securitized financial assets and similar transactions, particularly if the entity has continuing exposure to the risks related to transferred financial assets. SFAS 166 eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets and requires additional disclosures. The provisions of SFAS 166 are effective for our fiscal year ending October 31, 2011 and are not expected to have a material effect on our consolidated financial statements.
In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”). SFAS 165 establishes general standards for accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. SFAS 165 sets forth the period after the balance sheet date, during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition in the financial statements, identifies the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that should be made about events or transactions that occur after the balance sheet date. The provisions of SFAS 165 were effective for our quarter ended July 31, 2009 and did not have a material effect on our consolidated financial statements.
In April 2009, the FASB issued staff position (“FSP”) No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (FAS 157-4). FAS 157-4 provides guidance on estimating fair value when market activity has decreased and on identifying transactions that are not orderly. Additionally, entities are required to disclose in interim and annual periods the inputs and valuation techniques used to measure fair value. The provisions of FAS 157-4 were effective for our quarter ended July 31, 2009 and did not have a material effect on our consolidated financial statements.
In April 2009, the FASB issued staff position (“FSP”) No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (FAS 115-2 and FAS 124-2). FAS 115-2 and FAS 124-2 modified existing accounting guidance to demonstrate the intent and ability to hold an investment security for a period of time sufficient to allow for any anticipated recovery in fair value. When the fair value of a debt or equity security has declined below the amortized cost at the measurement date, an entity that intends to sell a security or is more-likely-than-not to sell the security before the recovery of the security’s cost basis, must recognize the other-than-temporary impairment in earnings. The provisions of FSP No. FAS 115-2 and FAS 124-2 were effective for our quarter ended July 31, 2009 and did not have a material effect on our consolidated financial statements.
In April 2009, the FASB issued staff position (“FSP”) No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (FAS 107 and APB 28-1). FAS 107-1 and APB 28-1 amend SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” to require an entity to provide disclosures about fair value of financial instruments in interim financial statements. The provisions of FAS 107-1 and APB 28-1 were effective for our quarter ended July 31, 2009 and did not have a material effect on our consolidated financial statements.
In April 2008, the FASB issued staff position (“FSP”) No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (FAS 142-3). FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142, “Goodwill and Other Intangible Assets.” The intent of the position is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141R, and other U.S. generally accepted accounting principles. The provisions of FAS 142-3 are effective for our fiscal year 2010 and are currently not expected to have a material effect on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141(R) “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141(R) is effective as of the beginning of an entity’s fiscal year that begins after December 15, 2008, and will be adopted by us in the first quarter of fiscal 2010. SFAS 141(R) is currently not expected to have a material effect on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”, an amendment of ARB No. 51 (“SFAS 160”). SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests (NCI) and classified as a component of equity. This new consolidation method will significantly change the accounting for transactions with minority interest holders. SFAS 160 is effective for fiscal years beginning after December 15, 2008, and will be adopted by us in the first quarter of fiscal year 2010. SFAS 160 is currently not expected to have a material effect on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115,” (“SFAS 159”). This standard permits entities to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The provisions of SFAS 159 were effective beginning in our fiscal year 2009 and did not have a material effect on our consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), to establish a consistent framework for measuring fair value and expand disclosures on fair value measurements. In February 2008, the FASB issued FSP 157-2, which delays the company’s fiscal year 2009 effective date of FAS 157 for all nonfinancial assets and nonfinancial liabilities, except those recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until our fiscal year 2010. The provisions of SFAS 157 were effective beginning in our fiscal year 2009 and did not have a material effect on our consolidated financial statements.
Note 3. Stock-Based Compensation
We account for stock-based compensation under the provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (“SFAS 123(R)”). We use the straight-line method to recognize compensation expense over the requisite service period of the award.
Stock option activity for the nine months ended July 31, 2009 is as follows (in thousands):
Options Outstanding | ||||
Options outstanding at October 31, 2008 | 2,617 | |||
Options granted | 889 | |||
Options exercised | - | |||
Options forfeited or cancelled | (357 | ) | ||
Options outstanding at July 31, 2009 | 3,149 | |||
Options exercisable at July 31, 2009 | 2,385 |
Total stock-based compensation expense recorded for the three and nine months ended July 31 was as follows (in thousands):
2009 | 2008 | |||||||
Three months ended July 31 | $ | 377 | $ | 483 | ||||
Nine months ended July 31 | $ | 1,023 | $ | 559 |
Under SFAS 123(R), differences between actual and estimated stock option forfeitures are not recognized until the first vesting date following the actual forfeiture of an option. Generally, our stock options are granted during the first quarter of each fiscal year, and therefore recorded stock option forfeitures are typically greatest during that quarter. Stock option forfeitures reduced stock-based compensation expense by $275,000 and $495,000 in the first three quarters of 2009 and 2008, respectively.
Note 4. Deferred Commissions
Employee commissions on the sale of our products and services are earned at the time of invoicing and paid monthly. The related expense is deferred and amortized over the non-cancellable terms of the related customer contracts on the basis that the commission charges are so closely related to the revenue from such contracts that they should be recorded as an asset and charged to expense over the same period that the revenue is recognized. Total deferred commissions at July 31, 2009 and October 31, 2008 were $4,129,000 and $4,268,000, of which $1,176,000 and $834,000, respectively, were recorded as long-term deferred commissions and included in other long-term assets on our balance sheet.
Note 5. Software Development Costs
A reconciliation of capitalized software development costs is as follows (in thousands):
Gross Carrying Value | Accumulated Amortization | Net Carrying Value | ||||||||||
Balance, October 31, 2008 | $ | 49,856 | $ | (25,770 | ) | $ | 24,086 | |||||
Capitalized software development costs | 3,362 | - | 3,362 | |||||||||
Amortization | - | (6,688 | ) | (6,688 | ) | |||||||
Write-off of fully amortized costs | (7,569 | ) | 7,569 | - | ||||||||
Balance, July 31, 2009 | $ | 45,649 | $ | (24,889 | ) | $ | 20,760 |
In the first quarter of 2009, we wrote off approximately $7,569,000 of fully amortized software development costs and related accumulated amortization associated with software products no longer considered substantially in use.
Note 6. Identified Intangible Assets
Identified intangible assets subject to amortization were as follows (in thousands):
As of July 31, 2009 | As of October 31, 2008 | |||||||||||||||||||||||
Gross Carrying Value | Accumulated Amortzation | Net Carrying Value | Gross Carrying Value | Accumulated Amortzation | Net Carrying Value | |||||||||||||||||||
Acquired technology | $ | 7,300 | $ | (5,684 | ) | $ | 1,616 | $ | 7,300 | $ | (5,320 | ) | $ | 1,980 | ||||||||||
Trademarks and | ||||||||||||||||||||||||
tradenames | - | - | - | 1,380 | (1,380 | ) | - | |||||||||||||||||
Customer relationships | ||||||||||||||||||||||||
and lists | 19,800 | (18,697 | ) | 1,103 | 19,800 | (18,057 | ) | 1,743 | ||||||||||||||||
$ | 27,100 | $ | (24,381 | ) | $ | 2,719 | $ | 28,480 | $ | (24,757 | ) | $ | 3,723 |
In the first quarter of 2009, we wrote off approximately $1,380,000 of fully amortized identified intangible assets, and related accumulated amortization, which were no longer considered substantially in use.
Amortization expense for the identified intangible assets presented above was as follows (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
July 31, | July 31, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Amortization of intangible assets included in: | ||||||||||||||||
Cost of revenues | $ | 122 | $ | 205 | $ | 364 | $ | 616 | ||||||||
Operating expenses | 213 | 388 | 640 | 1,163 | ||||||||||||
$ | 335 | $ | 593 | $ | 1,004 | $ | 1,779 |
Estimated future annual amortization expense for identified intangible assets is as follows (in thousands):
Cost of | Operating | |||||||||||
Revenues | Expenses | Total | ||||||||||
Remainder of 2009 | $ | 122 | $ | 214 | $ | 336 | ||||||
2010 | 484 | 855 | 1,339 | |||||||||
2011 | 485 | 34 | 519 | |||||||||
2012 | 485 | - | 485 | |||||||||
2013 | 40 | - | 40 | |||||||||
$ | 1,616 | $ | 1,103 | $ | 2,719 |
The future annual amortization amounts presented above are estimates. Actual amortization expense may be different due to the acquisition, impairment, or accelerated amortization of identified intangible assets.
Note 7. Deferred Revenue
Deferred revenue primarily consists of billings and payments received in advance of revenue recognition from our subscription service and is recognized as revenue when revenue recognition criteria are met. We generally invoice our customers in full upon receipt of their subscription order. In circumstances where we do not bill the full subscription upon order, we do not include these unbilled amounts in deferred revenue. Accordingly, the deferred revenue balance does not represent the total remaining contract value of all non-cancelable subscription agreements. The components of deferred revenue were as follows (in thousands):
As of | As of | |||||||
July 31, | October 31, | |||||||
2009 | 2008 | |||||||
Total deferred revenue | $ | 48,570 | $ | 44,921 | ||||
Less: Long-term portion | (13,859 | ) | (8,916 | ) | ||||
Current deferred revenue | $ | 34,711 | $ | 36,005 |
Note 8. Restructuring and Other Charges
At various times over the past several years we have incurred restructuring costs related to our transition to a subscription-based business model during this period. These costs primarily include severance and facility closings in the U.S. and U.K.
The restructuring reserve activity (included in other accrued liabilities) from October 31, 2008 through July 31, 2009 was as follows (in thousands):
Severance | ||||||||||||
and related | Facility | |||||||||||
costs | closings | Total | ||||||||||
Reserve balance at October 31, 2008 | $ | 1,764 | $ | 1,029 | $ | 2,793 | ||||||
Cash payments | (1,434 | ) | (518 | ) | (1,952 | ) | ||||||
Foreign currency translation adjustment | - | (1 | ) | (1 | ) | |||||||
Reserve balance at July 31, 2009 | $ | 330 | $ | 510 | $ | 840 |
There were no restructuring charges during the first nine months of 2009.
Note 9. Comprehensive Income (Loss)
Total comprehensive income (loss) was as follows (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
July 31, | July 31, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net income (loss) | $ | 184 | $ | (2,061 | ) | $ | 566 | $ | (12,445 | ) | ||||||
Foreign currency translation adjustments | (49 | ) | (5 | ) | (12 | ) | 26 | |||||||||
Total comprehensive income (loss) | $ | 135 | $ | (2,066 | ) | $ | 554 | $ | (12,419 | ) |
Income tax effects for the components of other comprehensive income (loss) were not significant because our deferred tax assets are fully reserved. Accumulated other comprehensive loss was $1,234,000 and $1,222,000 at July 31, 2009 and October 31, 2008, respectively.
Note 10. Income Taxes
In the fourth quarter of fiscal 2008, we determined that the tax deductible portion of goodwill for which we recorded income tax expense in the first three quarters of fiscal 2008, was fully impaired. As a result of the impairment, we are no longer recording this expense.
We have not expensed, and do not maintain any accrual balances related to, interest and penalties related to unrecognized tax benefits. For future periods in which we may incur unrecognized tax benefits or uncertainties, we would classify any associated interest and penalties as a component of the income tax provision.
Business Description
PLATO Learning, Inc. is a Delaware corporation that was incorporated in 1989 and is headquartered in Bloomington, Minnesota. We are a leading provider of on-line instruction, curriculum management, assessment, and related professional development services to K–12 schools, community colleges and other educational institutions across the country. Our products are used by customers principally to provide alternative instruction to students performing below their grade level in order to help those students return to the classroom, recover course credits, pass high school exit exams or prepare for college and other post-secondary studies. In addition to the value provided to students, our solutions allow school districts to retain state and federal funding tied to student enrollment, and help educators meet the demands of state and federal student achievement initiatives for intervention, dropout prevention and college readiness. We also offer online and onsite staff professional development services to ensure optimal use of our products and to help schools meet their accountability requirements and school improvement plans.
Our research-based courseware library includes thousands of hours of mastery-based instruction covering discrete learning objectives in the subject areas of reading, writing, language arts, mathematics, science, and social studies. Our web-based assessment and alignment tools allow instruction to be personalized to each student’s unique needs and the curriculum is aligned to local, state, and national standards. Using our web-based products, educators are able to identify each student’s instructional needs and prescribe an individual learning program of PLATO Learning courseware, educational web sites, the school’s textbooks and other core and supplemental instructional materials. A variety of reports are available to help educators identify gaps in student understanding, monitor student progress and ensure that standard learning objectives are being addressed.
Beginning in late fiscal year 2005, we implemented a strategy to deliver our products and solutions on a subscription basis using a new internet-based learning management platform we market as the PLATO Learning EnvironmentTM, or PLE TM. As of July 31, 2009, approximately 1,350 school districts, community colleges and other educational institutions across 50 states subscribed to our instructional solutions delivered on PLETM, and over 1.4 million students, teachers and administrators at these institutions were registered to use PLE TM .
We operate our principal business in one industry segment, which is the development and marketing of online curriculum solutions and related services.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. We continually evaluate our critical accounting policies and estimates, and have identified the policies relating to the following areas as those that are significant to our financial statement presentation as they involve, subjective or complex judgments:
· | Revenue recognition |
· | Capitalized software development costs |
· | Valuation of deferred income taxes |
· | Valuation of identified intangible assets |
At the end of fiscal year 2008, we completed our transition to a software-as-a-service business model in which substantially all of our products are now delivered on a hosted, subscription service basis. Based on the completion of this transition, and in accordance with EITF 00-03, Application of SOP 97-2, “Software Revenue Recognition”, to Arrangements That Include the Right to Use Software Stored on Another Entity’s Hardware, we have applied SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use effective for the first quarter of fiscal year 2009. Under EITF 00-03, hosting arrangements in which customers do not have a contractual right to take possession of the software are service arrangements, and such software, subject to certain exceptions, is considered internal-use software subject to SOP 98-1. As a result of our application of SOP 98-1 in fiscal year 2009, we are capitalizing software development costs upon completion of the preliminary project stage rather than when technological feasibility is achieved, which we did for prior years pursuant to SFAS No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed” (“SFAS 86”). Application of SOP 98-1 also allows us to capitalize only direct costs of software development, rather than both direct costs and an allocation of indirect costs, which was allowed under SFAS 86.
There have been no other significant new accounting principles applied during the first nine months of 2009. For a more complete discussion of our accounting policies refer to Note 2 to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended October 31, 2008.
General Factors Affecting our Financial Results
There are a number of general factors that affect our results from period to period. These factors are discussed below.
Revenue. In 2008, we completed a transition of our business model from one that sells one-time perpetual licenses to software, for which revenue is generally recognized up-front upon delivery, to one that sells subscription-based products, for which revenue is recognized over the subscription period. The transition began in 2006 when we introduced many of our new subscription-based products and affects the comparability of our revenues over this period. As subscription revenues grow as a percentage of total revenues, we expect our period to period revenues to become more comparable and predictable.
Cost of Revenue and Gross Profit. A large portion of our costs of revenue are fixed in nature. These costs include amortization of capitalized software development and purchased technology, depreciation and other infrastructure costs to support our hosted subscription services, customer support operations, and full-time professional services personnel who deliver our training services. Accordingly, increases in revenues allow us to leverage these costs resulting in higher gross profit, while decreases in revenues have the opposite effect.
Operating Expenses. General and administrative expenses are substantially fixed in nature. However, certain components such as professional fees and similar expenses can vary based on a number of factors including business results, individual events, or initiatives we may be pursuing at various times throughout the year.
Incentive compensation is a significant variable component of our sales and marketing expenses, approximating 8% to 10% of total revenues in any given period. Sales and marketing expenses also include costs such as travel, tradeshows, and conferences that can vary with revenue activity or individual events that occur during the period.
Software maintenance and development expense in our consolidated statement of operations does not reflect our total level of spending on our products and services. Costs to maintain existing products and preliminary project development costs are charged to software maintenance and development expense as incurred. Costs incurred to develop or enhance new products after preliminary project development costs are incurred, which represent the majority of our total software development spending, are capitalized and amortized to cost of revenues. Accordingly, software maintenance and development expense in our consolidated statement of operations can fluctuate from period to period, in terms of both total dollars and as a percentage of revenue, based on the nature and timing of activities occurring during the period.
Amortization of intangibles represents the amortization of certain identified intangible assets acquired through various acquisitions. While these expenses are generally predictable from period to period because they are fixed over the course of their individual useful lives, they can be affected by events and other factors that result in impairment of these assets and a corresponding reduction in future amortization.
Cash Balances and Cash Flow. Our business is seasonal, with the largest portion of orders coming in our third and fourth fiscal quarters. These periods are when our customers’ budget spending typically peaks as they end their current budget period, begin a new budget period, and begin to plan their needs for the upcoming school year. As a result, cash balances generally decline during the first half of the fiscal year, and increase from those levels as order activity increases in the third and fourth quarter.
Results of Operations
Revenues
The following table summarizes certain key information to aid in the understanding of our discussion and analysis of revenues and should be read in conjunction with Note 2 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended October 31, 2008, which discusses our accounting policies regarding revenue recognition:
Revenue by Category (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
July 31, | July 31, | |||||||||||||||||||||||
2009 | 2008 | % Change | 2009 | 2008 | % Change | |||||||||||||||||||
Subscriptions | $ | 10,774 | $ | 9,247 | 16.5 | % | $ | 30,368 | $ | 25,691 | 18.2 | % | ||||||||||||
License fees | 1,328 | 3,353 | (60.4 | %) | 3,338 | 7,113 | (53.1 | %) | ||||||||||||||||
Services: | ||||||||||||||||||||||||
Professional services | 1,787 | 2,259 | (20.9 | %) | 5,536 | 6,579 | (15.9 | %) | ||||||||||||||||
Software maintenance | 2,142 | 3,032 | (29.4 | %) | 6,838 | 9,393 | (27.2 | %) | ||||||||||||||||
Other | 708 | 747 | (5.2 | %) | 2,203 | 2,242 | (1.7 | %) | ||||||||||||||||
Total Services | 4,637 | 6,038 | (23.2 | %) | 14,577 | 18,214 | (20.0 | %) | ||||||||||||||||
Total revenues | $ | 16,739 | $ | 18,638 | (10.2 | %) | $ | 48,283 | $ | 51,018 | (5.4 | %) |
Total revenues for the third quarter of 2009 declined 10.2% to $16.7 million, from $18.6 million for the same period in 2008.
Subscription revenues grew $1.6 million, or 16.5%, from $9.2 million in the third quarter of 2008 to $10.8 million for the same period this year. The increase in subscription revenue reflects continued growth in our base of subscription customers. As of July 31, 2009, approximately 1,350 educational institutions were subscribed to our PLE platform, up from approximately 1,100 institutions as of July 31, 2008.
Revenues from license fees on the sale of legacy perpetual license products and related software maintenance revenue totaled $3.5 million, a decline of 45.7%. The decline in license fees and software maintenance revenue reflects our declining emphasis on sales of non-strategic products licensed on a perpetual basis.
Professional services revenues declined $500,000 due to a reduction in the number of training days delivered resulting from lower training order levels in the fourth quarter of fiscal 2008 when a large portion of training orders for delivery in the upcoming school year are placed by customers..
Total revenues for the first nine months of 2009 declined 5.4% to $48.3 million from $51.0 million for the same period in 2008. Subscription revenues grew $4.7 million or 18.2%, but less than the $6.3 million decline in non-strategic license fees and software maintenance revenue on perpetual products. Professional services revenue declined $1.0 million to $5.5 million. The changes in revenue for the first nine months of the year are due largely to the same reasons as those affecting the third quarter as discussed above.
Cost of Revenue
Cost of Revenue by Category (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
July 31, | July 31, | |||||||||||||||||||||||
2009 | 2008 | % Change | 2009 | 2008 | % Change | |||||||||||||||||||
Subscriptions | $ | 4,095 | $ | 4,593 | (10.8 | %) | $ | 12,165 | $ | 14,058 | (13.5 | %) | ||||||||||||
License fees | 611 | 1,540 | (60.3 | %) | 1,467 | 4,060 | (63.9 | %) | ||||||||||||||||
Services | 2,418 | 3,172 | (23.8 | %) | 7,182 | 9,082 | (20.9 | %) | ||||||||||||||||
Total cost of revenue | $ | 7,124 | $ | 9,305 | (23.4 | %) | $ | 20,814 | $ | 27,200 | (23.5 | %) |
Total cost of revenue for the third quarter decreased $2.2 million to $7.1 million, or 23.4%, from the same period in 2008. Subscription cost of revenue declined $500,000 or 10.8%, on declines in software development amortization and royalty costs. The decline in amortization is due to asset impairments and reduced levels of capitalized software development spending in fiscal 2008. The decline in royalty costs relates to a royalty arrangement with a third party provider of curriculum content that was renegotiated in late fiscal 2008.
License fee cost of revenue in the third quarter declined $900,000 compared to the third quarter of 2008 due to lower product amortization, and to cost reduction initiatives undertaken in fiscal 2008. The services cost of revenue decreased 23.8% to $2.4 million from $3.2 million for the same period last year due to the lower professional services costs on lower revenue levels, and lower support costs due to our declining base of customers using our legacy perpetual products.
The total cost of revenue for the nine months ended July 31, 2009 decreased 23.5% to $20.8 million primarily due to the same reasons as those affecting the third quarter.
Operating Expenses
The following table summarizes the amounts and percentage change in amounts from the corresponding period during the previous year for certain operating expense line items.
Three Months Ended | Percent | Nine Months Ended | Percent | |||||||||||||||||||||
July 31, | Increase | July 31, | Increase | |||||||||||||||||||||
2009 | 2008 | (Decrease) | 2009 | 2008 | (Decrease) | |||||||||||||||||||
Sales and marketing | $ | 5,969 | $ | 6,657 | (10.3 | %) | $ | 17,460 | $ | 21,182 | (17.6 | %) | ||||||||||||
General and administrative | 2,209 | 2,258 | (2.2 | %) | 6,504 | 7,909 | (17.8 | %) | ||||||||||||||||
Software maintenance and development | 976 | 1,128 | (13.5 | %) | 2,251 | 3,306 | (31.9 | %) | ||||||||||||||||
Amortization of intangibles | 214 | 388 | (44.8 | %) | 640 | 1,163 | (45.0 | %) | ||||||||||||||||
Restructuring | - | 800 | (100.0 | %) | - | 2,435 | (100.0 | %) | ||||||||||||||||
Total operating expenses | $ | 9,368 | $ | 11,231 | (16.6 | %) | $ | 26,855 | $ | 35,995 | (25.4 | %) |
Total operating expenses were $9.4 million for the third quarter of 2009, a decrease of 16.6%, or $1.9 million, from the same period in 2008. Total operating expenses for the first nine months of fiscal 2009 were $26.9 million, down $9.1 million, or 25.4%, from the same period last year. The fiscal 2008 periods include restructuring charges of $0.8 million in the third quarter and $2.4 million in the year-to date period. The absence of these charges in fiscal 2009 accounted for declines in total operating expenses of 6.4% and 5.4%, respectively. As discussed further below, the balance of the declines in both periods generally reflects the actions taken last year to streamline our cost structure and complete our transition to a software-as-a-service business model.
Sales and marketing expenses declined $700,000 for the third quarter of 2009, and $3.7 million for the first nine months, on reduced indirect sales, travel and marketing costs from the same periods in 2008. None of these declines were due to a reduction in our field direct sales force, which has remained at about the same level throughout fiscal 2008 and 2009.
General and administrative costs declined 2.2% to $2.2 million for the third quarter of 2009 from the same period in 2008 due primarily to reductions in headcount, compliance and other professional services costs. These factors combined with improved collections experience in the second quarter of 2009 that resulted in a reduction in bad debt expense were the primary contributors to the 17.8% decline in general and administrative expenses for the first nine months of the year.
Software maintenance and development expenses in the third quarter and first nine months of 2009 declined $150,000 and $1.1 million, respectively, compared to the same periods in 2008, reflecting increasing stability of our PLE platform, the quality of new product releases and reduced maintenance on legacy products. Third quarter 2009 software maintenance and development expenses also include a charge of approximately $300,000 related to the departure of our former Chief Technology Officer in the quarter.
Other (Expense) Income, Net
Other (expense) income consists primarily of interest income on our cash and cash equivalent balances, net of the costs of maintaining availability on our line of credit. The deterioration in other (expense) income from the fiscal 2008 to fiscal 2009 third quarter and year-to-date periods is primarily due to lower interest income from declining interest rates and generally lower cash balances.
Backlog
We consider backlog to be the total of deferred revenue reported on our balance sheet plus unbilled amounts due under non-cancelable subscription agreements (“deferred revenue backlog”). On this basis, deferred revenue backlog was $62.7 million and $50.6 million at July 31, 2009 and 2008, respectively, as follows (in thousands):
As of July 31, | ||||||||||||
2009 | 2008 | % Change | ||||||||||
Total Deferred Revenue | $ | 48,570 | $ | 43,324 | 12.1 | % | ||||||
Add: Unbilled amounts due under | ||||||||||||
non-cancelable subscription agreements | 14,170 | 7,324 | 93.5 | % | ||||||||
Deferred Revenue Backlog | $ | 62,740 | $ | 50,648 | 23.9 | % | ||||||
Components of Deferred Revenue Backlog: | ||||||||||||
Subscriptions | $ | 51,771 | $ | 38,413 | 34.8 | % | ||||||
License fees | 99 | 349 | (71.6 | %) | ||||||||
Services | 10,870 | 11,886 | (8.5 | %) | ||||||||
Deferred Revenue Backlog | $ | 62,740 | $ | 50,648 | 23.9 | % |
At July 31, 2009, we expect approximately $49.3 million of our deferred revenue backlog to be recognized as revenue subsequent to fiscal year 2009.
Liquidity and Capital Resources
Cash and Cash Equivalents
At July 31, 2009, cash and cash equivalents were $14.2 million, a decrease of $5.8 million from October 31, 2008. This decrease primarily represents net cash used in operations in 2009 of $2.0 million, and investments in capitalized software development of $3.4 million. Included in the $2.0 million in net cash used in operations were approximately $2.4 million in severance paid to terminated employees and a one-time payment of $1.3 million pursuant to a renegotiated royalty arrangement.
Working Capital and Liquidity
At July 31, 2009, our principal sources of liquidity included cash and cash equivalents totaling $14.2 million, net billed accounts receivable of $17.8 million, and unbilled commitments under non-cancelable subscription contracts totaling $14.2 million, of which $2.8 million is expected to be billed in 2009. We also have a three-year senior secured credit facility that provides us with a revolving line of credit up to the lesser of $20 million or the amount of our trailing twelve months subscription and software maintenance revenues. Under this agreement we have the option of selecting an interest rate for any drawdown under the facility equal to the applicable Prime or LIBOR Rate plus a sliding margin that is based on the amount of borrowings outstanding. Borrowings under the agreement are secured by all of our assets. Financial covenants apply only when the unused portion of the line of credit, plus cash and cash equivalents on hand, is less than $12.5 million, and are limited to minimum quarterly thresholds of earnings before interest, taxes, depreciation and amortization (EBITDA). At July 31, 2009 and October 31, 2008, availability under the line was $20 million and there were no borrowings outstanding.
Cash used by operations in the first nine months decreased to $2.0 million in 2009, from $3.5 million in the first nine months of 2008, due to reductions in overall spending partially offset by the $3.7 million in cash payments discussed under the caption “Cash and Cash Equivalents” above. Cash used in investing activities declined to $3.9 million for the first nine months of 2009, from $9.1 million for the same period last year reflecting a reduction in our software investment requirements.
Our future liquidity needs will depend on, among other factors, the timing and extent of software development expenditures, order volume, the timing and collection of receivables, and expenditures in connection with possible acquisitions or stock repurchases. From time to time, we may evaluate potential acquisitions of products or businesses that complement our core business. We may consider and acquire other complementary businesses, products, or technologies in the future. We believe our existing cash, cash equivalents, anticipated cash provided by operating activities, and availability under our line of credit will be sufficient to meet our working capital and capital expenditure needs over the next 12 months.
Contractual Obligations and Commercial Commitments
Our contractual obligations and commercial commitments consist primarily of future minimum payments due under operating leases and royalty and software license agreements. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended October 31, 2008 for a table showing our contractual obligations. There were no significant changes to our contractual obligations during the nine months ended July 31, 2009.
At July 31, 2009, we had no significant commitments for capital expenditures.
Recent Accounting Pronouncements
See Note 2 of the Condensed Consolidated Financial Statements for a summary of the new accounting pronouncements.
Disclosures about Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of July 31, 2009.
Forward-Looking Statements
In addition to historical information, this Form 10-Q contains forward-looking statements. These forward-looking statements are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (“the Act”). The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “should” and similar expressions are intended to identify “forward-looking statements” within the meaning of the Act. Forward-looking statements include, among others, statements about our future performance, the sufficiency of our sources of capital for future needs, and the expected impact of recently issued accounting pronouncements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in Part II Item 1A of this Form 10-Q and Part I Item 1A of our Annual Report on Form 10-K for the fiscal year ended October 31, 2008. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. We undertake no obligation to revise or publicly release any revision to these forward-looking statements based on circumstances or events, which occur in the future. Readers should carefully review the risk factors described in this report on Form 10-Q and in other documents we file from time to time with the Securities and Exchange Commission.
Interest Rate Risk
Our borrowing capacity primarily consists of a revolving line of credit with interest rates that fluctuate based upon the Prime Rate and LIBOR market indexes. At July 31, 2009, we did not have any outstanding borrowings under this revolving credit facility. As a result, risk relating to interest fluctuation is considered minimal.
Foreign Currency Exchange Rate Risk
Our foreign operations are not a significant component of our business, and as a result, risks relating to foreign currency fluctuation are considered minimal.
See the information set forth under the captions, “Interest Rate Risk” and “Foreign Currency Exchange Rate Risk” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report on Form 10-Q.
Evaluation of Disclosure Controls and Procedures
Based on our management’s evaluation (with the participation of our principal executive officer and principal financial officer), as of the end of the period covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the third quarter of fiscal 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II.
Our business is subject to a number of risks and uncertainties which we discussed in detail in Part I, Item 1A of our 2008 Annual Report on Form 10-K.
Exhibit Number and Description | |
31.01 | Certification of Chief Executive Officer under Rule 13a-14(a) adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.02 | Certification of Chief Financial Officer under Rule 13a-14(a) adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.01 | Certification of Chief Executive Officer under 18 U.S.C. 1350 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.02 | Certification of Chief Financial Officer under 18 U.S.C. 1350 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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.
PLATO LEARNING, INC. | By /s/ Vincent P. Riera |
September 9, 2009 | Vincent P. Riera |
President and Chief Executive Officer | |
(principal executive officer) | |
/s/ Robert J. Rueckl | |
Robert J. Rueckl | |
Vice President and Chief Financial Officer | |
(principal financial officer) |
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