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 JUNE 30, 2007
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR the transition period from to
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Commission file number: 0-20824
INFOCROSSING, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3252333
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2 CHRISTIE HEIGHTS STREET; LEONIA, NJ 07605
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 840-4700
Check 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 past 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 [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act) (Check
one: Large Accelerated Filer [ ] Accelerated Filer [X] Non-accelerated Filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
There were 22,254,276 shares of the registrant's Common Stock, $0.01 par value,
outstanding as of August 1, 2007.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INFOCROSSING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
JUNE 30, 2007 DECEMBER 31, 2006
-------------------- --------------------
(UNAUDITED)
CURRENT ASSETS:
Cash and equivalents $ 15,051 $ 22,324
Trade accounts receivable, net of allowances for doubtful accounts of
$226 at June 30, 2007 and $380 at December 31, 2006 25,456 23,000
Due from related parties 127 167
Prepaid software costs 10,005 8,399
Deferred income taxes 2,447 2,447
Current deferred customer acquisition costs 1,174 1,039
Other current assets 8,812 7,584
---------------- ----------------
Total current assets 63,072 64,960
Property, equipment and purchased software, net 52,850 45,049
Deferred software, net 3,035 2,826
Goodwill 157,454 157,454
Other intangible assets, net 15,194 16,819
Deferred income taxes 1,766 4,184
Deferred customer acquisition costs 2,604 2,658
Deferred financing costs 2,313 2,836
Other non-current assets 1,328 1,339
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TOTAL ASSETS $ 299,616 $ 298,125
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 10,969 $ 11,065
Current portion of long-term debt and capitalized lease obligations 22,441 18,749
Accrued expenses 11,591 13,596
Income taxes payable 2,023 1,544
Current deferred revenue 3,616 4,334
---------------- ----------------
Total current liabilities 50,640 49,288
Notes payable, long-term debt and capitalized lease obligations,
net of current portion 106,526 113,202
Deferred revenue, net of current portion 5,486 6,067
Other long-term liabilities 4,705 4,326
---------------- ----------------
TOTAL LIABILITIES 167,357 172,883
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock; $0.01 par value; 3,000,000 shares authorized; none issued - -
Common stock; $0.01 par value; 50,000,000 shares authorized; shares issued of
22,919,616 and 22,675,811 at June 30, 2007 and December 31, 2006,
respectively 229 227
Additional paid-in capital 176,483 173,684
Accumulated deficit (40,832) (45,048)
---------------- ----------------
135,880 128,863
Less 668,969 shares at June 30, 2007 and December 31, 2006,
of common stock held in treasury, at cost (3,621) (3,621)
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 132,259 125,242
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 299,616 $ 298,125
================ ================
See Notes to Consolidated Financial Statements.
INFOCROSSING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS EXCEPT
NUMBERS OF SHARES AND PER SHARE AMOUNTS)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------------------ -----------------------------------------
2007 2006 2007 2006
-------------------- ------------------- ------------------- -------------------
(UNAUDITED) (UNAUDITED)
REVENUES $ 61,980 $ 56,836 $ 121,138 $ 112,757
---------------- ---------------- ---------------- ----------------
COSTS and EXPENSES:
Costs of revenues, excluding depreciation
and amortization shown below 42,442 39,829 83,424 79,705
Selling and promotion costs 3,066 2,446 6,110 4,738
General and administrative expenses 5,159 4,661 10,115 9,949
Depreciation and amortization 4,645 4,129 9,181 8,260
---------------- ---------------- ---------------- ----------------
55,312 51,065 108,830 102,652
---------------- ---------------- ---------------- ----------------
INCOME FROM OPERATIONS 6,668 5,771 12,308 10,105
---------------- ---------------- ---------------- ----------------
Interest income (177) (142) (288) (247)
Interest expense 2,594 2,597 5,069 5,119
---------------- ---------------- ---------------- ----------------
2,417 2,455 4,781 4,872
---------------- ---------------- ---------------- ----------------
INCOME BEFORE
INCOME TAXES 4,251 3,316 7,527 5,233
Income tax expense 1,828 1,366 3,311 2,272
---------------- ---------------- ---------------- ----------------
NET INCOME $ 2,423 $ 1,950 $ 4,216 $ 2,961
================ ================ ================ ================
BASIC EARNINGS PER SHARE:
Net income $ 0.11 $ 0.09 $ 0.19 $ 0.14
================ ================ ================ ================
Weighted average number of
common shares outstanding 22,123,392 21,266,019 22,066,034 21,011,521
================ ================ ================ ================
DILUTED EARNINGS PER SHARE:
Net income $ 0.10 $ 0.09 $ 0.18 $ 0.14
================ ================ ================ ================
Weighted average number of
common shares and share
equivalents outstanding 23,598,479 22,213,539 23,502,616 21,857,723
================ ================ ================ ================
See Notes to Consolidated Financial Statements.
INFOCROSSING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED, IN THOUSANDS)
COMMON SHARES PAR VALUE ADDITIONAL ACCUMULATED TREASURY STOCK TOTAL
PAID IN CAPITAL DEFICIT AT COST
------------- --------- --------------- ------------ -------------- ------------
Balances,
December 31, 2006 22,676 $ 227 $ 173,684 $ (45,048) $ (3,621) $ 125,242
Exercises of stock
Options and warrants 244 2 1,402 - - 1,404
Tax credit for stock options - - 412 - - 412
Stock option expense - - 985 - - 985
Net income - - - 4,216 - 4,216
------------- -------- --------------- ------------ -------------- ------------
Balances,
June 30, 2007 22,920 $ 229 $ 176,483 $ (40,832) $ (3,621) $ 132,259
============= ======== =============== ============ ============== ============
See Notes to Consolidated Financial Statements.
Page 5
INFOCROSSING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED JUNE 30,
-----------------------------------------
2007 2006
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(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,216 $ 2,961
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 9,181 8,260
Reduction in allowance for doubtful accounts 113 -
Accretion of discounted convertible debt 176 175
Deferred income taxes 2,413 1,576
Compensation expense related to stock options 985 841
Deferred compensation expense related to executive pension benefits 215 215
Payments received on related party balances, net of interest charges 40 93
Decrease (increase) in:
Trade accounts receivable (2,562) 5,187
Prepaid software costs (1,606) (4,677)
Deferred customer acquisition costs and other current assets (409) (1,083)
Deferred finance costs and other non-current assets 588 (26)
Increase (decrease) in:
Accounts payable (96) (3,720)
Accrued expenses (1,908) (4,993)
Income taxes payable (72) (10)
Deferred revenue (1,299) 3,962
Other liabilities 241 186
------------------ ------------------
Net cash provided by (used in) operating activities 10,216 8,947
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, equipment, and purchased software (3,776) (2,710)
Proceeds from disposal of property 235 -
Payments related to acquisitions (173) (4,491)
Increase in deferred software costs (621) (513)
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Net cash used in investing activities (4,335) (7,714)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt and capitalized leases (14,970) (4,691)
Excess tax benefit from exercise of stock options 412 20
Exercises of stock options and warrants 1,404 3,197
------------------ ------------------
Net cash used in financing activities (13,154) (1,474)
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Net decrease in cash and equivalents (7,273) (241)
Cash and equivalents, beginning of period 22,324 16,892
------------------ ------------------
Cash and equivalents, end of the period $ 15,051 $ 16,651
================== ==================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 4,927 $ 4,172
================== ==================
Income taxes $ 541 $ 685
================== ==================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITY:
Equipment acquired subject to capital leases $ 11,810 $ 3,294
================== ==================
Shares given in partial payment of an acquisition $ - $ 1,786
================== ==================
See Notes to Consolidated Financial Statements.
INFOCROSSING, INC. AND SUBSIDIAIRES
NOTES TO THE CONSOLIDATED INTERIM
FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Infocrossing, Inc.
and its wholly owned subsidiaries (collectively, the "Company"). All significant
inter-company balances and transactions have been eliminated.
The consolidated balance sheet as of June 30, 2007; the consolidated statements
of operations for the three and six months ended June 30, 2007 and 2006; the
consolidated statements of cash flows for the six months ended June 30, 2007 and
2006; and the consolidated statement of stockholders' equity for the six months
ended June 30, 2007 have not been audited. In the opinion of management, all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position, results of operations, and cash flows for
the periods indicated have been made. The results of operations and cash flows
for the periods ended June 30, 2007 and 2006 are not necessarily indicative of
the operating results for the full year.
Except for the adoption of Financial Accounting Standards Board ("FASB")
Interpretation No. 48, ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES - AN
INTERPRETATION OF FASB STATEMENT NO. 109 ("FIN48") as discussed in Note 4 below,
there were no changes to the Company's Critical Accounting Policies as disclosed
in our Annual Report on Form 10-K for the year ended December 31, 2006.
Certain reclassifications have been made to the prior periods to conform to the
current presentation.
Certain disclosures normally included in financial statements prepared in
accordance with U.S. generally accepted accounting principles have been
condensed or omitted. These consolidated interim financial statements should be
read in conjunction with the Company's Annual Report on Form 10-K for the year
ended December 31, 2006.
2. STOCK OPTIONS AND WARRANTS; STOCK-BASED COMPENSATION
The Company issues options pursuant to its 2005 Stock Plan (the "2005 Plan"). On
June 21, 2007, the stockholders of the Company voted to approve a proposal to
increase the shares reserved for the 2005 Plan to 2,500,000 from 2,000,000.
Unless terminated earlier, the 2005 Plan will terminate on the tenth anniversary
of the day immediately preceding the date on which the 2005 Plan was approved by
the stockholders. Options are also outstanding from issuances under two
predecessor plans.
There were 3,432,685 and 4,072,982 options outstanding at June 30, 2007 and
December 31, 2006, respectively. At June 30, 2007, the Company has reserved
1,452,794 common shares for issuance upon exercise of the following warrants:
(i) 65,000 shares exercisable at $18.00 per share expiring September 16, 2010;
(ii) 50,000 shares exercisable at $15.00 per share expiring January 13, 2009;
and (iii) 1,337,794 shares exercisable at $7.86 per share expiring October 20,
2008. In addition, there are 5,673,759 shares reserved for issuance upon the
potential exchange of the $72,000,000 outstanding convertible notes (the
"Notes").
Stock-Based Compensation
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
123(R), SHARE-BASED PAYMENT ("SFAS 123(R)") using the modified prospective
method effective January 1, 2006.
The fair value of each stock option is estimated on the date of the grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in the first six months of 2007: a risk-free
interest rate of between 4.45% and 4.74%; expected lives of three to five years;
and expected volatility of between 41.22% and 47.5%. The following weighted
average assumptions were used for grants in the first six months of 2006: a
risk-free interest rate of between 4.37% and 5.203%; expected lives of three to
five years; and expected volatility of between 44.0% and 47.9%. The fair value
for each grant is amortized over the vesting period of the option, typically
three years. Options that vest immediately are expensed when granted.
In the three and six months ended June 30, 2007, the total stock option expense
is $503,000 and $985,000, respectively, of which $188,000 and $364,000,
respectively, was recorded in costs of revenues excluding depreciation and the
remainder was in general and administrative expenses. In the three and six
months ended June 30, 2006, the total stock option expense was $385,000 and
$841,000, respectively, of which $144,000 and $315,000, respectively, was in
costs of revenues excluding depreciation with the remainder in general and
administrative expenses. At the Company's current effective tax rate (see Note
4), the after-tax effect of the expense of stock options for the three and six
months ended June 30, 2007 was approximately $275,000 and $539,000,
respectively, or $0.01 and $0.02, respectively, for both basic and diluted
shares. The unrecorded pretax compensation cost related to unvested options at
June 30, 2007 totals approximately $3,464,000, amortizable over the period
ending June 30, 2010. Additional option grants will increase this amount, and
forfeitures of options will reduce it.
3. BASIC AND DILUTED EARNINGS PER COMMON SHARE
The Company computes earnings per share in accordance with SFAS No. 128,
EARNINGS PER SHARE. Basic earnings per share is computed by dividing net income
by the weighted average number of common shares outstanding during the period.
Diluted earnings per share adjusts basic earnings per share for the effects of
convertible securities, stock options and warrants and other potentially
dilutive financial instruments, only in the periods in which such effect is
dilutive. The adoption of SFAS 123(R) did not have a material impact on the
number of diluted shares outstanding. The following table shows the number of
shares equivalents, both in total and as weighted average shares after
application of the treasury method, used to calculate diluted earnings per
share. The Company has convertible Notes (see "Liquidity and Capital Resources")
that may be converted, in certain circumstances, into 5,673,759 shares of common
stock. The potential conversion of the Notes (which also require a pro forma
adjustment to reported net income to add back interest on the Notes, net of tax)
would only be included in circumstances where such inclusion is dilutive.
Three months Six months Three months Six months
Ended June 30, 2007 Ended June 30, 2006
--------------------------------- ---------------------------------
INCLUDED:
Shares from the exercise of options and warrants 4,341,308 4,326,308 3,409,045 3,409,045
----------- ----------- ----------- -----------
EXCLUDED:
Shares from the exercise of options and warrants 544,171 559,171 2,525,638 2,525,638
Shares from the assumed conversion of the Notes 5,673,759 5,673,759 5,673,759 5,673,759
----------- ----------- ----------- -----------
CALCULATION:
Weighted average shares outstanding 22,123,392 22,066,034 21,266,019 21,011,521
Weighted average share equivalents from
options and warrants 1,475,087 1,436,582 947,520 846,202
----------- ----------- ----------- -----------
Diluted shares and share equivalents 23,598,479 23,502,616 22,213,539 21,857,723
----------- ----------- ----------- -----------
4. INCOME TAXES
For the quarter ended June 30, 2007, the Company recorded income tax expense of
$1,828,000, consisting of a current provision of $256,000 and a deferred
provision of $1,572,000. The effective rate for the quarter ended June 30, 2007
was 43%, compared with 41% for the quarter ended June 30, 2006. In the six
months ended June 30, 2007, the Company recorded income tax expense of
$3,311,000, consisting of a current provision of $479,000 and a deferred
provision of $2,832,000. The effective rate for the six months ended June 30,
2007 was 44%, compared with 43% for the six months ended June 30, 2006. The
increase in the effective rate in the Current Quarter compared with the Prior
Year's Quarter relates to state income taxes.
A deferred tax benefit reflects future income tax savings realizable when tax
credits, net operating loss carry-forwards, or other deductions based on
temporary differences between taxable income and income before income taxes can
be used to reduce income taxes. If there is uncertainty of realizing deferred
tax benefits, a valuation allowance must be established. The Company has a
deferred tax valuation allowance of $2,462,000 at June 30, 2007. The Company has
net operating loss carry-forwards of approximately $34,000,000 for Federal
income tax purposes that begin to expire in 2019. The use of these net operating
loss carry-forwards is limited in amount in future years pursuant to Section 382
of the Internal Revenue Code.
In June 2006, the FASB issued FIN48, which is required for fiscal years
beginning after December 15, 2006. The Company adopted the provisions of FIN48
on January 1, 2007. FIN48 clarifies the accounting for uncertainty in income
taxes by prescribing a minimum recognition threshold and measurement process for
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN48 also provides guidance on
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. At the adoption date and as of June 30,
2007, the Company had no material unrecognized tax uncertainties. The Company
may from time to time be assessed interest and penalties, although such
assessments have historically been immaterial to our financial results. Penalty
assessments are recorded in general and administrative expenses and interest
assessments are recorded as interest expense. The most recent year audited for
federal purposes is 2003.
5. RELATED PARTY TRANSACTIONS
On May 9, 2007, the employment agreements between the Company's Chairman and
Vice Chairman were amended to increase the retirement benefit from $180,000 to
$230,000 annually for the Chairman beginning January 1, 2012 and from $120,000
to $170,000 annually for the Vice Chairman beginning January 1, 2010. The
pension benefits payable to each of the Chairman and the Vice Chairman are not
payable pursuant to a funded qualified pension plan. The Company did not make
any contributions for 2006, and does not expect to contribute to this plan in
2007. The expense recorded in the three and six month periods ended June 30,
2007 was $108,000 and $215,000, respectively. The expense recorded in the three
and six month periods ended June 30, 2006 was $123,000 and $215,000,
respectively.
In accordance with the Sarbanes-Oxley Act of 2002, no further advances have been
made to the Company's officers since July 2002. The advances have accrued
interest. During the six months ended June 30, 2007, an officer repaid
approximately $46,000, representing his entire amount due to the Company.
6. CONTINGENT TRANSACTION BONUS POOL
On March 5, 2007, the Board of Directors of the Company approved a transaction
bonus pool of up to $5,000,000 in the event there is a Change in Control, as
described below. The recipients of awards under this arrangement may include the
Company's principal executive officer, president, principal financial officer,
principal operating officer, and named executive officers as well as other
officers and employees of the Company. Any awards under this plan shall be made
by the Options and Compensation Committee of the Company's Board of Directors in
the sole discretion of the members of such committee. "Change in Control" of the
Company shall mean a Change in Control of a nature that would be required to be
reported in the Company's definitive proxy statement filed under the Securities
Exchange Act of 1934, as amended (the "Act"), or any successor thereto, provided
that without limiting the foregoing, a Change in Control of the Company also
shall mean (i) the acquisition of voting stock by a person or a "group" of
persons, as provided by Section 13d-3 of the Act, resulting in such person or
group having beneficial ownership of at least 25% of the Company's stock
eligible to vote for the election of directors; (ii) certain changes in the
Board of Directors of the Company whereby the individuals having a majority of
the votes at the beginning of a 24 month period cease having such a majority at
the end of such period; or (iii) a merger transaction whereby the Company's
shareholders do not own voting securities in the surviving entity representing
at least 50% of the total voting power to elect directors of the surviving
entity.
7. STATE INCENTIVE PROGRAM
In September 2006, the Company and the State of Nebraska (the "State") entered
into an agreement approving the Company's participation in a state incentive
program for economic growth based on maintaining certain levels of "qualified
property," as defined, within the State. The application to participate in this
program had been submitted by (i)Structure, LLC prior to the Company's
acquisition of (i)Structure. (i)Structure, LLC's name has been changed to
Infocrossing, LLC. A final agreement with the State was signed in September
2006. The Company reduced costs of revenues by $1,372,000 in 2006, approximately
$100,000 of which related to 2005; $241,000 in the three months ended March 31,
2007, and $35,000 in the three months ended June 30, 2007. Receipt of the
incentives in the form of sales tax refunds will not be paid until the State
completes an audit to verify that the Company has made sufficient investments in
qualified property to be eligible for such refunds. The State will audit the
Company's investment after the close of 2007. Upon completion of the audit and
verification process, the State will process claims for refund of sales tax
credits. The Company will receive these incentives on qualified investments
through 2013.
8. ACQUISITION OF INFOCROSSING, INC.
Wipro Limited (NYSE:WIT) ("Wipro"), and the Company signed a definitive
agreement, dated August 6, 2007, for Wipro to acquire Infocrossing for $18.70
per share in cash. The transaction will be conducted by means of a tender offer
for all of the outstanding shares of Infocrossing, followed by a merger of
Infocrossing with a Wipro subsidiary. The tender offer is subject to a number of
customary closing conditions, including regulatory approvals, and is expected to
close by the fourth quarter of 2007. Wipro provides comprehensive IT solutions
and services, including systems integration, information systems outsourcing,
package implementation, software application development and maintenance, and
research and development services to corporations globally.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Our management believes that we are a leading provider of selective information
technology outsourcing services to enterprise clients. We deliver a full suite
of outsourced solutions that enable clients to leverage our infrastructure and
process expertise to improve their efficiency and reduce their operating costs.
During our history of more than twenty years, we have developed expertise in
managing complex computing environments, beginning with traditional data center
outsourcing services and evolving to a comprehensive set of managed solutions.
We support a variety of clients, and assure the optimal performance, security,
reliability, and scalability of our clients' mainframes, distributed servers,
and networks, irrespective of where the systems' components are located.
Strategic acquisitions have contributed significantly to our historical growth.
On November 30, 2005, we acquired 100% of the membership interests in
(i)Structure, LLC, a Delaware limited liability company with operations in
Colorado and data centers in Omaha, NE and Tempe, AZ (the "(i)Structure
Acquisition"). In August 2006, we changed the name of (i)Structure, LLC to
Infocrossing, LLC. The operations of Infocrossing, LLC have been integrated into
our operations so that the entire enterprise benefits from operational leverage
and consolidation.
Wipro Limited (NYSE:WIT) ("Wipro"), and the Company signed a definitive
agreement, dated August 6, 2007, for Wipro to acquire Infocrossing for $18.70
per share in cash (the "Wipro Transaction"). The Wipro Transaction will be
conducted by means of a tender offer for all of our outstanding shares, followed
by a merger of Infocrossing with a Wipro subsidiary. The tender offer is subject
to a number of customary closing conditions, including regulatory approvals, and
is expected to close by the fourth quarter of 2007. Wipro provides comprehensive
IT solutions and services, including systems integration, information systems
outsourcing, package implementation, software application development and
maintenance, and research and development services to corporations globally.
We operate in one reportable segment of providing information technology
outsourcing services.
Certain reclassifications have been made to the prior period to conform to the
current presentation.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2007 AND 2006
For the quarter ended June 30, 2007 (the "Current Quarter"), revenues increased
$5,144,000 (9%) to $61,980,000 from $56,836,000 for the quarter ended June 30,
2006 (the "Prior Year's Quarter"). Revenue for the Current Quarter was net of
attrition totaling approximately 2% of revenues. On a sequential basis, revenues
increased $2,822,000 compared with revenues of $59,158,000 for the first quarter
of 2007 reflecting the installation of new clients for our selective outsourcing
services. New contracts of $32,400,000, up to three years in length, and
$42,000,000, averaging five years in length, were previously announced on May
10, 2007 and March 13, 2007, respectively. The majority of the services under
these contracts will commence after the Current Quarter and are expected to
provide greater revenues in the third and fourth quarters of the year.
Costs of revenues, excluding depreciation and amortization ("COR"), increased by
$2,613,000 (7%) to $42,442,000 during the Current Quarter compared with
$$39,829,000 for the Prior Year's Quarter. COR as a percentage of revenues
decreased to 68% in the Current Quarter from 70% in the Prior Year's Quarter,
reflecting the savings achieved during 2006 from the integration of
(i)Structure, LLC, which we purchased in November 2005. We acquired (i)Structure
in November of 2005, and implemented approximately $14,000,000 in annual cost
reductions during 2006. Costs of revenues in the Current Quarter reflect a
savings of $35,000 as a result of an estimated incentive attributable to our
participation in a state incentive program for economic growth based on
maintaining certain levels of qualified property within the sponsoring state. We
entered into the final agreement with the state in September 2006. Upon entering
into the final agreement, we reduced cost of revenues by $1,047,000 relating to
periods prior to September 30, 2006. Receipt of the incentives in the form of
sales tax refunds will not be paid until the state completes an audit to verify
our investment in qualified property. The state will conduct its audit in early
2008. Upon completion of the audit and verification process, the state will
process claims for refund of sales tax credits.
Selling and promotion costs increased by $620,000 (25%) to $3,066,000 for the
Current Quarter from $2,446,000 for the Prior Year's Quarter, and increased as a
percentage of revenues to 5% for the Current Quarter from 4% for the Prior
Year's Quarter. Of this increase, $337,000 (54% of the increase) is attributable
to additional compensation and related expenses for an expanded sales force. The
remainder of the increase is attributable to expanded marketing activities. As
discussed in the Company's annual report on Form 10-K for December 31, 2006, we
expect to increase our sales and marketing expenses by approximately $3,000,000
in 2007, to add more people to our sales team and increase our spending on
marketing to build broader market awareness.
General and administrative expenses ("G&A") increased by $498,000 (11%) to
$5,159,000 for the Current Quarter from $4,661,000 for the Prior Year's Quarter.
We incurred a $567,000 increase in professional fees, including approximately
$200,000 for the Wipro Transaction, partially offset by a $113,000 reduction in
bad debt expense and a $51,000 reduction in office rent expense. There was an
additional savings of $31,000 relating to the payment of severance in 2006
arising from the (i)Structure Acquisition. In addition, there was a $74,000
increase in stock option expense.
On January 1, 2006, we adopted Statement of Financial Accounting Standards
("SFAS") No. 123(R), SHARED-BASED PAYMENT ("SFAS 123(R)"). This standard
requires us to measure the cost of employee services received in exchange for an
award of equity instruments based on the fair value of the award on the grant
date. It eliminates the intrinsic method previously allowable under APB Opinion
No. 25. In the Current Quarter, the total stock option expense is $503,000, of
which $188,000 is in COR and the remainder is in G&A. In the Prior Year's
Quarter the total stock option expense was $385,000, of which $144,000 was in
COR with the remainder in G&A. At our current effective tax rate, the after-tax
effect of the expense of stock options in the Current Quarter was approximately
$275,000 or $0.01 for both basic and diluted shares. The unrecorded pretax
compensation cost related to unvested options at June 30, 2007 totals
approximately $3,464,000, amortizable over the period ending June 30, 2010.
Additional option grants will increase this amount, and forfeitures of options
will reduce it.
Depreciation and amortization of fixed assets and intangibles increased $516,000
(12%) to $4,645,000 for the Current Quarter from $4,129,000 the Prior Year's
Quarter, related to depreciation on fixed asset additions.
Net interest expense decreased by $38,000 to $2,417,000 for the Current Quarter
from $2,455,000 for the Prior Year's Quarter. This decrease consists of an
increase in interest income of $35,000 and a net decrease in interest expense of
$3,000. Interest expense (including amortization of deferred financing costs) on
bank debt declined $212,000 from the Prior Year's Quarter total of $1,442,000
compared with $1,230,000 in the Current Quarter. The average balance of such
debt was $42,697,000 for the Current Quarter and $51,215,000 for the Prior
Year's Quarter. An increase in interest expense related to capitalized leases of
approximately $209,000 partially offset the decrease in bank debt interest.
A deferred tax benefit reflects future income tax savings realizable when tax
credits, net operating loss carry-forwards, or other deductions based on
temporary differences between taxable income and income before income taxes can
be used to reduce income taxes. If there is uncertainty of realizing deferred
tax benefits, a valuation allowance must be established. We have a deferred tax
valuation allowance of $2,462,000 at June 30, 2007. We have net operating loss
carry-forwards of approximately $34,000,000 for Federal income tax purposes that
begin to expire in 2019. The use of these net operating loss carry-forwards is
limited in amount in future years pursuant to Section 382 of the Internal
Revenue Code of 1986.
For the Current Quarter, we recorded a tax expense of $1,828,000, compared with
tax expense of $1,366,000 for the Prior Year's Quarter. The effective rate in
the Current Quarter was 43%, compared with 41% in the Prior Year's Quarter. The
increase in the effective rate relates to state income taxes. Although income
taxes were accrued at a rate of 43% in the Current Period, they are payable at
the rate of 6% after the application of net operating loss carry-forwards.
We had net income of $2,423,000 for the Current Quarter compared with $1,950,000
for the Prior Year's Quarter. For the Current Quarter, we had basic income per
common share of $0.11 and diluted income per share of $0.10, compared with
income per common share of $0.09 per basic and diluted share for the Prior
Year's Quarter. The number of weighted average basic shares increased to
approximately 22,123,000 at June 30, 2007 from approximately 21,266,000 at June
30, 2006, reflecting the issuance of approximately 637,000 shares from the
exercise of options and warrants. Diluted weighted average shares increased from
approximately 22,214,000 at June 30, 2006 to approximately 23,598,000 diluted
shares at June 30, 2007. We have convertible Notes (see "Liquidity and Capital
Resources") that may be converted, in certain circumstances, into 5,673,759
shares of common stock. The potential conversion of the Notes (which also
require a pro forma adjustment to reported net income to add back interest on
the Notes, net of tax) would only be included in circumstances where such
inclusion is dilutive. For the Current Quarter, the potential conversion,
including the after-tax add back of $449,000 of interest expense, was not
dilutive. For the Prior Quarter, the potential conversion, including the
after-tax add back of $461,000, was not dilutive.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2007 AND 2006
For the six months ended June 30, 2007 (the "Current Period"), revenues
increased $8,381,000 (7%) to $121,138,000 from $112,757,000 for the six months
ended June 30, 2006 (the "Prior Year's Period"). Revenue for the Current Period
was net of attrition totaling approximately 3% of revenues. New contracts of
$32,400,000, up to three years in length, and $42,000,000, averaging five years
in length, were previously announced on May 10, 2007 and March 13, 2007,
respectively. The majority of the services under these contracts will commence
after the Current Period and are expected to provide greater revenues in the
third and fourth quarters of the year.
Costs of revenues, excluding depreciation and amortization ("COR"), increased by
$3,719,000 (5%) to $83,424,000 during the Current Period compared with
$79,705,000 for the Prior Year's Period. COR as a percentage of revenues
decreased to 69% in the Current Period from 71% in the Prior Year's Period,
reflecting the savings achieved during 2006 from the integration of
(i)Structure, LLC, which we purchased in November 2005. We acquired (i)Structure
in November of 2005, and implemented approximately $14,000,000 in annual cost
reductions during 2006. Costs of revenues in the Current Period reflect a
savings of $276,000 as a result of an estimated incentive attributable to our
participation in a state incentive program for economic growth based on
maintaining certain levels of qualified property within the sponsoring state. We
entered into the final agreement with the state in September 2006. Upon entering
into the final agreement, we reduced cost of revenues by $1,047,000 relating to
periods prior to September 30, 2006. Receipt of the incentives in the form of
sales tax refunds will not be paid until the state completes an audit to verify
our investment in qualified property. The state will conduct its audit in early
2008. Upon completion of the audit and verification process, the state will
process claims for refund of sales tax credits.
Selling and promotion costs increased by $1,372,000 (29%) to $6,110,000 for the
Current Period from $4,738,000 for the Prior Year's Period, and increased as a
percentage of revenues to 5% for the Current Period from 4% for the Prior Year's
Period. Of this increase, $572,000 (42% of the increase) is attributable to
additional compensation and related expenses for an expanded sales force. The
remainder of the increase is attributable to expanded marketing activities. As
discussed in the Company's annual report on Form 10-K for December 31, 2006, we
expect to increase our sales and marketing expenses by approximately $3,000,000
in 2007, to add more people to our sales team and increase our spending on
marketing to build broader market awareness.
General and administrative expenses ("G&A") increased by $166,000 (2%) to
$10,115,000 for the Current Period from $9,949,000 for the Prior Year's Period.
We incurred a $532,000 increase in professional fees, including approximately
$200,000 for the Wipro Transaction, partially offset by a $48,000 reduction in
bad debt expense, $61,000 less in travel and entertainment expenses, a $46,000
reduction in insurance charges, and a $72,000 reduction in office rent expense.
There was an additional savings of $235,000 relating to the payment of severance
in 2006 arising from the (i)Structure Acquisition. In addition, there was a
$95,000 increase in stock option expense.
On January 1, 2006, we adopted Statement of Financial Accounting Standards
("SFAS") No. 123(R), SHARED-BASED PAYMENT ("SFAS 123(R)"). This standard
requires us to measure the cost of employee services received in exchange for an
award of equity instruments based on the fair value of the award on the grant
date. It eliminates the intrinsic method previously allowable under APB Opinion
No. 25. In the Current Period, the total stock option expense is $985,000, of
which $364,000 is in COR and the remainder is in G&A. In the Prior Year's Period
the total stock option expense was $841,000, of which $315,000 was in COR with
the remainder in G&A. At our current effective tax rate, the after-tax effect of
the expense of stock options in the Current Period was approximately $539,000 or
$0.02 for both basic and diluted shares. The unrecorded pretax compensation cost
related to unvested options at June 30, 2007 totals approximately $3,464,000,
amortizable over the period ending June 30, 2010. Additional option grants will
increase this amount, and forfeitures of options will reduce it.
Depreciation and amortization of fixed assets and intangibles increased $921,000
(11%) to $9,181,000 for the Current Period from $8,260,000 for the Prior Year's
Period, related to depreciation on fixed asset additions.
Net interest expense decreased by $91,000, to $4,781,000 for the Current Period
from $4,872,000 for the Prior Year's Period. This decrease consists of an
increase in interest income of $41,000 and a decrease in interest expense of
$50,000. Interest expense (including amortization of deferred financing costs)
on bank debt declined $360,000 from the Prior Year's Period total of $2,847,000
compared with $2,487,000 in the Current Period. The average balance of such debt
was $44,758,000 during the Current Period and $54,605,000 during the Prior
Year's Period. An increase in interest expense related to capitalized leases of
$310,000 partially offset the decrease in bank debt interest.
A deferred tax benefit reflects future income tax savings realizable when tax
credits, net operating loss carry-forwards, or other deductions based on
temporary differences between taxable income and income before income taxes can
be used to reduce income taxes. If there is uncertainty of realizing deferred
tax benefits, a valuation allowance must be established. We have a deferred tax
valuation allowance of $2,462,000 at June 30, 2007. We have net operating loss
carry-forwards of approximately $34,000,000 for Federal income tax purposes that
begin to expire in 2019. The use of these net operating loss carry-forwards is
limited in amount in future years pursuant to Section 382 of the Internal
Revenue Code of 1986.
For the Current Period, we recorded a tax expense of $3,311,000, compared with
tax expense of $2,272,000 for the Prior Year's Period. The effective rate in the
Current Period was 44%, compared with 43% in the Prior Year's Period. The
increase in the effective rate relates to state income taxes. Although income
taxes were accrued at a rate of 44% in the Current Period, they are payable at
the rate of 6% after the application of net operating loss carry-forwards.
We had net income of $4,216,000 for the Current Period compared with $2,961,000
for the Prior Year's Period.
For the Current Period, we had basic income per common share of $0.19 and
diluted income per share of $0.18, compared with income per common share of
$0.14 per basic and diluted share for the Prior Year's Period. The number of
weighted average basic shares increased to approximately 22,066,000 at June 30,
2007 from approximately 21,012,000 at June 30, 2006, reflecting the issuance of
approximately 637,000 shares from the exercise of options and warrants. Diluted
weighted average shares increased from approximately 21,858,000 at June 30, 2006
to approximately 23,503,000 diluted shares at June 30, 2007. We have convertible
Notes (see "Liquidity and Capital Resources") that may be converted, in certain
circumstances, into 5,673,759 shares of common stock. The potential conversion
of the Notes (which also require a pro forma adjustment to reported net income
to add back interest on the Notes, net of tax) would only be included in
circumstances where such inclusion is dilutive. For the Current Period, the
potential conversion, including the after-tax add back of $897,000 of interest
expense, was not dilutive. For the Prior Period, the potential conversion,
including the after-tax add back of $922,000, was not dilutive.
EBITDA
EBITDA represents net income before interest, taxes, depreciation and
amortization. We present EBITDA because we consider such information an
important supplemental measure of our performance and believe it is frequently
used by securities analysts, investors and other interested parties in the
evaluation of companies with comparable market capitalization to us, many of
which present EBITDA when reporting their results. We also use EBITDA as one of
the factors used to determine the total amount of bonuses available to be
awarded to executive officers and other employees. Our credit agreement uses
EBITDA (with additional adjustments) to measure compliance with covenants such
as interest coverage and debt incurred. EBITDA is also used by prospective and
current lessors as well as potential lenders to evaluate potential transactions
with us. In addition, EBITDA is also widely used by us and other buyers to
evaluate and determine the price of potential acquisition candidates.
EBITDA has limitations as an analytical tool, and you should not consider it in
isolation, or as a substitute for analysis of our results as reported under U.S.
Generally Accepted Accounting Principles ("GAAP"). Some of these limitations
are: (a) EBITDA does not reflect changes in, or cash requirements for, our
working capital needs; (b) EBITDA does not reflect the significant interest
expense, or the cash requirements necessary to service interest or principal
payments, on our debts; and (c) although depreciation and amortization are
non-cash charges, the assets being depreciated and amortized may have to be
replaced in the future, and EBITDA does not reflect any cash requirements for
such capital expenditures. Because of these limitations, EBITDA should not be
considered as a principal indicator of our performance. We compensate for these
limitations by relying primarily on our GAAP results and using EBITDA only on a
supplemental basis.
For the Current Period our EBITDA increased by $3,124,000 (17%) to $21,489,000
from $18,365,000 for the Prior Period, and increased $1,413,000 (14%) to
$11,313,000 for the Current Quarter from $9,900,000 for the Prior Year's
Quarter. EBITDA for the Current and Prior Year's Periods includes non-cash
charges of $985,000 and $841,000, respectively, relating to stock option expense
recorded under SFAS 123(R). EBITDA for the Current and Prior Year's Quarters
includes non-cash charges of $503,000 and $385,000, respectively, relating to
stock option expense.
The following table reconciles EBITDA to net income for the period presented
RECONCILIATION - IN THOUSANDS
- -------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
2007 2006 2007 2006
---------- ----------- ---------- ----------
NET INCOME $ 2,423 $ 1,950 $ 4,216 $ 2,961
Add back:
Tax expense 1,828 1,366 3,311 2,272
Net interest expense 2,417 2,455 4,781 4,872
Depreciation and amortization 4,645 4,129 9,181 8,260
---------- ----------- ---------- ----------
EBITDA $ 11,313 $ 9,900 $ 21,489 $ 18,365
========== =========== ========== ==========
EBITDA is a measure of our performance that is not required by, or presented in
accordance with, GAAP. EBITDA is not a measurement of our financial performance
under GAAP and should not be considered as an alternative to net income, income
from operating activities or any other performance measures derived in
accordance with GAAP.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $10,216,000 for the Current Period
(net of a $412,000 decrease in taxes payable related to the exercise of stock
options that is classified as a financing activity) on $ 4,216,000 of net
income, as adjusted for non-cash depreciation, amortization, and accretion of
debt discount of $9,357,000 and $2,341,000 from a decrease in deferred tax
assets and an increase in taxes payable (other than the amount classified as a
financing activity), which includes the utilization of a portion of the
Company's net operating loss carry-forwards. SFAS 123(R) requires that the tax
benefit attributable to stock option dispositions be classified as a financing
activity in the statement of cash flows beginning with the year ended December
31, 2006, rather than as a component of cash from operations. Significant
sources of cash during the Current Period included: the accrual of $215,000 for
a non-qualified unfunded pension plan; the amortization of deferred finance
costs and other non-current assets of $588,000; and $985,000 from the
non-cash-expense related to stock options required pursuant to SFAS 123(R).
Significant uses of cash during the Current Period included an increase in
accounts receivable (net of a decrease in the allowance for bad debts) of
$2,449,000 due to the timing of receipts; an increase in prepaid expenses and
other current assets of $2,015,000, a decrease in deferred revenue of
$1,299,000; and a decrease in accounts payable, accrued expenses and other
liabilities of $1,763,000.
Investing activities during the Current Period include $3,541,000 for the
purchase of fixed assets (net of disposals), mostly for software licenses that
will benefit operations in 2007 and future years. During the Current Period, we
also entered into capital leases having an aggregate carrying value of
approximately $11,810,000 and invested $621,000 in internally-developed
software. Approximately $4,353,000 of the capital leases were for the
previously-announced upgrades we completed in the Current Period to our Tempe,
AZ facility, and $5,837,000 of capital leases for equipment were for
success-based requirements including new customer contracts and amendments to
existing client contracts. The remaining capital lease additions were for
technology equipment refreshes.
Free cash flow, defined as cash flow from operations less cash disbursed for
capital expenditures and deferred software additions, increased by $95,000 to
$5,819,000 for the Current Period from $5,724,000 for the Prior Period, and
decreased $2,518,000 to $4,611,000 for the Current Quarter from $7,129,000 for
the Prior Year's Quarter, reflecting higher cash expenditures for fixed assets
and deferred software costs for the Current Period and the Current Quarter. We
present this measure because we consider such information an important
supplemental measure of performance and believe it is frequently used by
securities analysts, investors and other interested parties in the evaluation of
companies with market capitalization comparable to our own, many of which
present free cash flow when reporting their results. The table below shows the
reconciliation of free cash flow to cash flow from operations for the periods
presented.
RECONCILIATION - IN THOUSANDS
- -------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
2007 2006 2007 2006
---------- ----------- ---------- ----------
Cash flow provided by operations $ 6,884 $ 8,990 $ 10,216 $ 8,947
Less:
Fixed asset purchases for cash (1,876) (1,656) (3,776) (2,710)
Software costs deferred (397) (205) (621) (513)
---------- ----------- ---------- ----------
Free Cash Flow $ 4,611 $ 7,129 $ 5,819 $ 5,724
========== =========== ========== ==========
Free cash flow has limitations as an analytical tool, and you should not
consider it in isolation or as a substitute for analysis of our results as
reported under GAAP. These limitations include that free cash flow excludes
other significant cash flows, such as principal payments on debt. Because of
these limitations, free cash flow should not be considered as a principal
indicator of our performance. We compensate for these limitations by relying
primarily on the Company s GAAP results and using free cash flow only on a
supplemental basis.
Financing activities during the Current Period include the repayment of
approximately $9,833,000 on the term loan described below and $5,137,000 of
capital leases, and the receipt of $1,404,000 from the exercise of stock options
and warrants. As noted above, we added $11,810,000 of equipment subject to new
capital lease agreements during the Current Period. Payments due on capital
leases in the next twelve months are $7,716,000, out of a total due on capital
leases at June 30, 2007 of $25,534,000.
We have a $70,000,000 senior secured credit facility (the "Credit Agreement"),
with certain banks and other financial institutions that were initially, or in
the future might become, lenders (the "Lenders"), including a Lender that also
acts as sole and exclusive administrative and collateral agent (the "Agent"),
and an affiliate of the Agent that acts as sole and exclusive lead arranger and
sole book manager. The Credit Agreement provides for a $55 million term loan,
subject to a combination of scheduled quarterly repayment amounts which began
September 30, 2006, potential annual payments due no more than 95 days after
each year-end equal to 50% of our Excess Cash Flow, as that term is defined in
the Credit Agreement, with the first of such payments of $177,000 made April 3,
2007, and other payments as described below. The Credit Agreement also provides
for a $15 million revolving credit facility (including letter of credit
subfacilities). We currently have no balance due on the revolving credit
facility. We have $744,000 outstanding standby letters of credit. The maturity
date for both the term loan and the revolving credit facility is April 14, 2009.
Loans outstanding under the Credit Agreement bear interest at LIBOR plus the
Applicable Rate (as such term is defined in the Credit Agreement) or, at our
option, the alternate base rate (the greater of the prime rate or the federal
funds rate plus one half of one percent (0.50%)) plus the Applicable Rate. At
June 30, 2007, the interest rate on the term loan was 8.33%.
If we receive certain types of cash proceeds, including but not limited to
insurance proceeds, proceeds from the sale of assets, or proceeds from the
exercise of stock warrants and certain stock options, we are required to make
prepayments of the term loan in the amount of one-half of the proceeds received.
We made payments on January 4 and July 5, 2007 of $179,500 and $452,000,
respectively, related to option exercises in 2006 and the first six months of
2007. Such prepayments, when made, reduce the amounts of future scheduled
quarterly amortization payments. The scheduled quarterly amortization payments
made in the Current Period totaled $4,476,000. The currently scheduled quarterly
amounts due on the term loan are approximately: $7,136,000 for the remainder of
2007; and $16,651,000 for 2008. The balance of the term loan and any amounts
outstanding under the revolving credit facility are due April 14, 2009. Upon a
change of control as defined in the Credit Agreement, the outstanding loans will
become due and payable. As a result, upon the consummation of the Wipro
transaction the loans must be repaid.
The terms of the Credit Agreement include various covenants including, but not
limited to: a maximum leverage ratio; minimum consolidated earnings before
interest, taxes, depreciation, and amortization; a minimum debt coverage ratio;
and limitations on indebtedness, capital expenditures, investments, loans,
mergers and acquisitions, stock issuances and repurchases, and transactions with
affiliates. In addition, the terms of the Credit Agreement limit our ability to
pay cash dividends. We were in compliance with such covenants at June 30, 2007
and 2006.
We have $72,000,000 of outstanding 4.0% Convertible Senior Notes due July 15,
2024 (the "Notes"). Interest on the Notes is payable semi-annually in the amount
of $1,440,000 in July and January.
The Notes are convertible, subject to certain circumstances listed below, at the
option of the holder prior to maturity, into shares of our common stock at a
specified conversion price, subject to certain adjustments. The conversion price
must be adjusted to reflect stock dividends, stock splits, issuances of rights
to purchase shares of common stock, and other events. Upon conversion, we will
have the right to deliver to the holders, at our option, cash, shares of common
stock, or a combination thereof. At the current conversion price of $12.69, the
Notes are convertible into 5,673,759 common shares. The Notes and the shares of
common stock into which they may be converted may be resold pursuant to a
registration statement on Form S-3 that became effective in August 2004.
The circumstances that permit holders to convert their Notes are: (1) if the
market price per share of our common stock is more than 130% of the applicable
conversion price for at least 20 consecutive trading days during the 30
consecutive trading day period ending on the last day of the preceding fiscal
quarter; (2) on or before July 15, 2019, during the five business-day period
following any 10 consecutive trading-day period in which the trading price for
the Notes during such ten-day period was less than 98% of the applicable
conversion value for the Notes during that period, subject to certain
limitations; (3) if the Notes have been called for redemption; or (4) upon the
occurrence of specified corporate transactions, such as (a) distributions to our
common stockholders of rights to acquire shares of our common stock at a
discount; (b) distributions to our common stockholders when the distribution has
a per share value in excess of 5% of the market price of our common stock; and
(c) a consolidation, merger or binding share exchange pursuant to which our
common stock will be converted into cash, securities or other property. Upon a
"change of control," as defined in the indenture, the holders can require us to
repurchase all or part of the Notes for cash equal to 100% of principal plus
accrued interest (the "CIC Put"). A consolidation, merger, or binding exchange
also may constitute a "change of control" in certain instances. If the "change
of control" occurred prior to July 15, 2009, in certain instances, we may be
required to pay a "make whole premium" as defined in the indenture when
repurchasing the Notes. The CIC Put represents an embedded derivative that would
require bifurcation. Since we believed that any value associated with the CIC
Put would be de minimis, no value was assigned at the time of issuance or in the
subsequent periods, and this embedded derivative was not bifurcated. In light of
the Wipro Transaction discussed above, the value of the CIC Put in future
quarters will not be de minimis. Assuming the Wipro Transaction closes on
September 15, 2007, the CIC Put will be approximately $1,394,000. The amount of
the CIC Put will decrease over time. We anticipate that the closing will occur
by the fourth quarter of 2007.
Since the market price per share of our common stock was more than 130% of the
applicable conversion price for at least 20 consecutive trading days during the
30 consecutive trading day period ending on the last day of the Current Quarter,
holders may convert their Notes into shares of our common stock during the third
quarter ending September 30, 2007.
We can call the Notes, in part or in whole, for cash at any time on or after
July 15, 2007 at a price equal to 100% of the principal amount of the Notes,
plus accrued interest, plus a "premium" if the redemption is prior to July 15,
2009, provided, however, the Notes are only redeemable prior to July 15, 2009 if
the market price of our common stock has been at least 150% of the conversion
price then in effect for at least 20 trading days during any 30 consecutive
trading day period. The "premium" referred to in the preceding sentence shall be
in an amount equal to $173.83 per $1,000 principal amount of Notes, less the
amount of any interest actually paid on such Notes prior to the redemption date.
We have no current plans to call the Notes.
The holders of the Notes may require that we purchase for cash all or a portion
of the Notes on July 15, 2009, 2014, and 2019 at a repurchase price equal to
100% of the principal amount of the Notes plus any accrued interest. There are
no financial covenants, other than a limitation on incurring additional
indebtedness, as defined in the indenture.
As of June 30, 2007, we had cash and equivalents of $15,051,000 and
approximately $14,256,000 of availability under our revolving credit facility.
We believe that our cash and equivalents, current assets, and cash generated
from future operating activities will provide adequate resources to fund our
ongoing operating requirements for at least the next twelve months.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48, ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES - AN
INTERPRETATION OF FASB STATEMENT NO. 109 ("FIN48"), which is required for fiscal
years beginning after December 15, 2006. We adopted the provisions of FIN48 on
January 1, 2007. FIN48 clarifies the accounting for uncertainty in income taxes
by prescribing a minimum recognition threshold and measurement process for
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN48 also provides guidance on
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. At the adoption date and as of June 30,
2007, we had no material unrecognized tax uncertainties. We may from time to
time be assessed interest and penalties, although such assessments have
historically been immaterial to our financial results. Penalty assessments are
recorded in general and administrative expenses and interest assessments are
recorded as interest expense.
In September 2006 and February 2007, respectively, the FASB issued Statement of
Accounting Standards ("SFAS") No. 157, FAIR VALUE MEASUREMENTS, and SFAS No.
159, THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES, both
effective for fiscal years beginning after November 15, 2007. We are currently
evaluating the impact the adoption of these statements will have on our
operations or financial position.
FORWARD-LOOKING STATEMENTS
Statements made in this Report on Form 10-Q (the "Quarterly Report"), including
the accompanying financial statements and notes, other than statements of
historical fact, are forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance, including statements relating to products, customers, suppliers,
business prospects and effects of acquisitions. In some cases, forward-looking
statements can be identified by terminology such as "may," "will," "should,"
"expect," "anticipate," "intend," "plan," "believe," "estimate," "potential," or
"continue," the negative of these terms or other comparable terminology. These
statements involve a number of risks and uncertainties and as such, final
results could differ from estimates or expectations due to risks and
uncertainties, including, but not limited to: successful completion of the
tender offer for all of the Company's shares followed by the merger with a
subsidiary of Wipro Technologies; incomplete or preliminary information; changes
in government regulations and policies; continued acceptance of the Company's
products and services in the marketplace; competitive factors; closing contracts
with new customers and renewing contracts with existing customers on favorable
terms; expanding services to existing customers; new products; technological
changes; the Company's dependence upon third-party suppliers; intellectual
property rights; difficulties with the identification, completion, and
integration of acquisitions; and other risks. For any of these factors, the
Company claims the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995, as amended.
You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this Quarterly Report and are
based on information currently and reasonably known to us. We undertake no
obligation to release any revisions to or update these forward-looking
statements to reflect events or circumstances that occur after the date of this
Quarterly Report or to reflect the occurrence or effect of anticipated or
unanticipated events.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
With respect to our investments, we are not significantly exposed to the impact
of interest rate changes, foreign currency fluctuations, or changes in market
values. We primarily invest in money market mutual funds issued only by major
financial institutions of recognized strength and security. We do not make
investments for trading purposes.
INTEREST RATE RISK
We believe that the carrying amount of our fixed rate debt and capitalized
leases of $91,224,000 approximates fair value based on interest rates that are
currently available to us with similar terms and remaining maturities. As of
June 30, 2007, we had $37,743,000 of outstanding debt bearing interest at LIBOR
plus the Applicable Rate (as such term is defined in the Credit Agreement). At
our option, this debt can alternatively bear interest at the Applicable Rate
plus either the Bank of America prime rate or the federal funds rate plus
one-half of one percent (0.50%). The rate on this portion of our debt was 8.33%
at June 30, 2007. A one percent change in the interest rate paid on this debt,
on the balance at June 30, 2007, would result in a $377,000 annual change in
interest expense.
MARKET RISK
Our accounts receivable are subject, in the normal course of business, to
collection risks. We regularly assess these risks and have established policies
and business practices to protect against the adverse effects of collection
risks. As a result, we do not anticipate any material losses in this area.
FOREIGN CURRENCY RISKS
We believe that our foreign currency risk is immaterial. Our income from foreign
sources amounted to approximately 1% of total revenues in 2006 and for the
Current Period.
ITEM 4 - CONTROLS AND PROCEDURES.
An evaluation was performed under the supervision and with the participation of
our management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the
end of the period covered by this report. Based on that evaluation, our
management, including the Chief Executive Officer and the Chief Financial
Officer, concluded that our disclosure controls and procedures were effective as
of June 30, 2007. There have been no changes in our internal control over
financial reporting that occurred during our most recent fiscal quarter that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
We are involved in various claims and proceedings. While management currently
believes that the ultimate outcome of these proceedings, individually and in the
aggregate, will not have a material adverse effect on our financial position,
resolution of proceedings is subject to inherent uncertainties, and unfavorable
rulings could occur. We continually evaluate our exposure to loss contingencies
arising from pending or threatened legal proceedings. If circumstances arose
which would change management's view with respect to the ultimate outcome of any
of these matters, we would, as appropriate, recognize a loss contingency at such
time.
ITEM 1A - RISK FACTORS
There have been no material changes to the Risk Factors discussed in our Annual
Report on Form 10-K for the period ended December 31, 2006.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on June 21, 2007, the stockholders
elected one director for a three-year term. The vote was as follows:
FOR WITHHELD
Kathleen A, Perone 20,651,265 622,551
Messrs. Zach Lonstein, Peter J. DaPuzzo, Jeremiah M. Healy, Robert B. Wallach,
and Howard L. Waltman have terms expiring in 2008 and beyond and continue as
directors of the Company.
In addition, the stockholders approved, by a vote of 10,199,511 for and
6,827,246 against, a proposal to increase the number of authorized shares of
common stock reserved for issuance under the Company's 2005 Stock Plan to
2,500,000 from 2,000,000. A total of 21,980 shares abstained.
ITEM 6 - EXHIBITS
EXHIBIT NO. DESCRIPTION
2.1 Stock Purchase Agreement between the Company and ITO Holdings,
LLC, dated as of March 3, 2004, incorporated by reference to
Exhibit 2.1 to the Company's Current Report on Form 8-K filed
April 7, 2004.
2.2 Purchase and Sale Agreement, dated as of September 1, 2004
between Verizon Data Services, Inc. and the Company, incorporated
by reference to Exhibit 2.1 to the Company's Current Report on
Form 8-K filed October 14, 2004
2.3 Purchase Agreement, dated October 24, 2005, by and between
Infocrossing, Inc. and Level 3 Financing, Inc., incorporated by
reference to Exhibit 10 to a Current Report on Form 8-K filed
October 25, 2005.
2.4 Agreement and Plan of Merger, dated as of August 6, 2007, by and
among Wipro Limited, Roxy Acquisition Corp., and Infocrossing,
Inc., incorporated by reference to Exhibit 2.1 to a Current
Report on Form 8-K filed August 9, 2007.
3.1A Company's Restated Certificate of Incorporation, incorporated by
reference to the Company's Annual Report on Form 10-K for the
period ended December 31, 2004.
3.1B Certificate of Amendment to the Company's Certificate of
Incorporation, filed May 8, 2000, to increase the authorized
shares and to remove Article 11, incorporated by reference to the
Company's report on Form 10-Q for the period ended April 30,
2000.
3.1C Certificate of Amendment to the Company's Certificate of
Incorporation, filed as of June 5, 2000, to change the name of
the Company to Infocrossing, Inc., incorporated by reference to
the Company's report on Form 10-Q for the period ended April 30,
2000.
3.2 Amended and Restated Bylaws of the Company, incorporated herein
by reference to Exhibit 3.2 to the Company's Form 10-Q/A filed
May 17, 2004.
4.1A Securities Purchase Agreement, dated as of October 16, 2003, by
and among the Company and certain purchasers of common stock and
warrants, incorporated by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K filed October 22, 2003.
4.1B Registration Rights Agreement, dated as of October 16, 2003, by
and among the Company and certain purchasers of common stock and
warrants, incorporated by reference to Exhibit 4.2 to the
Company's Current Report on Form 8-K filed October 22, 2003.
4.1C Exchange Agreement, dated as of October 16, 2003, by and among
the Company and holders of series A preferred stock and series A
warrants, incorporated by reference to Exhibit 4.3 to the
Company's Current Report on Form 8-K filed October 22, 2003.
4.1D Second Amended and Restated Registration Rights Agreement, dated
as of October 21, 2003, by and among the Company and certain
stockholders of the Company, incorporated by reference to Exhibit
4.4 to the Company's Current Report on Form 8-K filed October 22,
2003.
EXHIBIT NO. DESCRIPTION
4.2A Securities Purchase Agreement, dated as of March 24, 2004, by and
among the Company and certain purchasers of the Company's common
stock, incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K filed April 1, 2004.
4.2B Registration Rights Agreement, dated as of March 24, 2004, by and
the Company and certain purchasers of the Company's common stock,
incorporated by reference to Exhibit 4.2 to the Company's Current
Report on Form 8-K filed April 1, 2004.
4.3A Indenture, dated as of June 30, 2004, between the Company as
issuer and Wells Fargo Bank, National Association, as trustee;
and form of 4.00% Convertible Senior Notes due 2024, incorporated
by reference to Exhibit 4.2 to a Registration Statement No.
333-117340 on Form S-3 filed July 13, 2004.
4.3B Resale Rights Agreement, dated as of June 30, 2004, by and
between the Company and Lehman Brothers, Inc. regarding the
Company's 4.00% Convertible Senior Notes due 2024, incorporated
by reference to Exhibit 4.4 to a Registration Statement No.
333-117340 on Form S-3 filed July 13, 2004.
4.4 Warrant Agreement dated as of February 1, 2002 by and between the
Company and the Warrantholders party thereto, incorporated by
reference to Exhibit 4.3 to the Company's Current Report on Form
8-K filed February 5, 2002.
4.5 Warrant Agreement between the Company and the Warrantholders
party thereto, incorporated by reference to the Company's Annual
Report on Form 10-K for the period ended December 31, 2004.
4.6A Amended and Restated 1992 Stock Option and Stock Appreciation
Rights Plan ("1992 Plan"), incorporated by reference to Appendix
A to Company's Definitive Proxy Statement for the Annual Meeting
of Stockholders held on May 8, 2000.
4.6B Amendment to 1992 Plan approved at the Company's Annual Meeting
of Stockholders held on June 22, 2001, incorporated by reference
to the Company's Annual Report on Form 10-K for December 31,
2004.
4.7A Company's 2002 Stock Option and Stock Appreciation Rights Plan
("2002 Plan"), incorporated by reference to Appendix B to the
Company's Definitive Proxy Statement for the Annual Meeting of
Stockholders held on June 25, 2002.
4.7B Amendment to 2002 Plan adopted by the Board of Directors on
January 21, 2005, incorporated by reference to the Company's
Annual Report on Form 10-K for December 31, 2004.
4.7C Amendment to 2002 Plan approved at the Company's Annual Meeting
of Stockholders held on June 15, 2004, incorporated by reference
to the Company's Annual Report on Form 10-K for December 31,
2004.
EXHIBIT NO. DESCRIPTION
4.8A The Company's 2005 Stock Plan, incorporated by reference to the
Company's Definitive Proxy Statement for the Annual Meeting of
Stockholders held on June 13, 2005.
4.8B Amendment to the 2005 Stock Plan, incorporated by reference to
the Company's Definitive Proxy Statement for the Annual Meeting
of Stockholders held on June 15, 2006.
10.1A Acquisition Loan Agreement dated July 29, 2004 between the
Company, various Lenders and CapitalSource Finance LLC as Agent
for the Lenders ("Acquisition Loan Agreement"), incorporated by
reference to Exhibit 10.7 to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 2004.
10.1B Guaranty and Security Agreement dated as of July 29, 2004,
between the Company and certain of the Company's subsidiaries and
CapitalSource Finance LLC ("Security Agreement"), incorporated by
reference to Exhibit 10.8 to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 2004.
10.1C Stock Pledge Agreement dated as of July 29, 2004, between the
Company and certain of the Company's subsidiaries and
CapitalSource Finance LLC ("Stock Pledge Agreement"),
incorporated by reference to Exhibit 10.9 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 2004.
10.2A Consent, Waiver and First Amendment to Acquisition Loan
Agreement dated as of October 1, 2004, incorporated by reference
to Exhibit 10.1 to the Company's Current Report on Form 8-K filed
October 4, 2004.
10.2B Joinder to Security Agreement dated October 1, 2004,
incorporated by reference to the Company's Annual Report on Form
10-K for the period ended December 31, 2004.
10.2C Addendum to Stock Pledge Agreement dated October 1, 2004,
incorporated by reference to the Company's Annual Report on Form
10-K for December 31, 2004.
10.2D Amended and Restated Consent, Waiver, and First Amendment to
Acquisition Loan Agreement, dated as of October 6, 2004,
incorporated by reference to Exhibit 10.16 to the Company's
Quarterly Report on Form 10-Q for the period ended September 30,
2004.
10.2E Second Amendment to Acquisition Loan Agreement and Other
Documents, dated as of November 8, 2004, incorporated by
reference to Exhibit 10.17 to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 2004.
10.2F Third Amendment to Acquisition Loan Agreement and Other
Documents, dated as of December 29, 2004, incorporated by
reference to the Company's Annual Report on Form 10-K for
December 31, 2004.
EXHIBIT NO. DESCRIPTION
10.3A Credit Agreement, dated November 30, 2005, between Infocrossing,
Inc., the lenders thereto, Bank of America, N.A. and Banc of
America Securities, LLC, incorporated by reference to a Current
Report on Form 8-K filed December 1, 2005.
10.3B Security Agreement, dated November 30, 2005, between
Infocrossing, Inc., certain subsidiaries of Infocrossing, Inc.,
and Bank of America, N.A., incorporated by reference to a Current
Report on Form 8-K filed December 1, 2005.
10.3C Securities Pledge Agreement, dated November 30, 2005, between
Infocrossing, Inc., certain subsidiaries of Infocrossing, Inc.,
and Bank of America, N.A., incorporated by reference to a Current
Report on Form 8-K filed December 1, 2005.
10.3D Amendment No. 1 to Credit Agreement and Waiver between the
Company and Bank of America, N.A., incorporated by reference to
the Company's Annual Report on Form 10-K for December 31, 2006.
10.3E Amendment No. 2 to Credit Agreement between the Company and Bank
of America, N.A. , incorporated by reference to the Company's
Annual Report on Form 10-K for December 31, 2006.
10.3F Amendment No. 3 to Credit Agreement and Waiver between the
Company and Bank of America, N.A. , incorporated by reference to
the Company's Annual Report on Form 10-K for December 31, 2006.
10.3G Security Joinder Agreement by Infocrossing iConnection dated as
of June 23, 2006, incorporated by reference to the Company's
Annual Report on Form 10-K for December 31, 2006.
10.3H Pledge Agreement Supplement between the Company and Bank of
America, N.A. dated as of June 23, 2006, incorporated by
reference to the Company's Annual Report on Form 10-K for
December 31, 2006.
10.10A Agreement of Sale and Leaseback, dated November 30, 2005,
between Infocrossing, Inc. and LSAC Operating Partnership, L.P.,
incorporated by reference to a Current Report on Form 8-K filed
December 1, 2005.
10.10B Lease, dated November 30, 2005, between (i)Structure, LLC and
LSAC Omaha L.P., incorporated by reference to a Current Report on
Form 8-K filed December 1, 2005.
10.10C Lease, dated December 29, 2005, between (i)Structure, LLC and
LSAC Tempe L.P. is not filed as it is substantially the same as
that between the (i)Structure, LLC and LSAC Omaha, L.P. except as
to the description of the building and the amount of rent.
10.11A Lease dated June 2, 1997 between the Company and Leonia
Associates, LLC, incorporated by reference to the Company's
Annual Report on Form 10-K for December 31, 2004.
10.11B First Amendment of Lease between the Company and Leonia
Associates, LLC, dated January 16, 1998, incorporated by
reference to the Company's Annual Report on Form 10-K for
December 31, 2004.
EXHIBIT NO. DESCRIPTION
10.11C Second Amendment of Lease between the Company and Leonia
Associates, LLC, dated as of September 9, 1999, incorporated by
reference to the Company's Annual Report on Form 10-K for
December 31, 2004.
10.11D Third Amendment of Lease between the Company and Leonia
Associates, LLC, dated as of August 28, 2000, incorporated by
reference to Exhibit 10.7D to the Company's 10-K for the fiscal
year ended October 31, 2000.
10.12A Tenth Floor Option Agreement between the Company, G-H-G Realty
Company ("GHG"), and RSL Com USA, Inc. ("RSL"), dated as of
November 30, 1999, with related notice of exercise dated February
14, 2000, incorporated by reference to Exhibit 10.6A to the
Company's Form 10-K for the fiscal year ended October 31, 2000.
10.12B Eleventh Floor Option Agreement between the Company, GHG, and
RSL, dated as of November 30, 1999, with related notice of
exercise dated December 2, 1999, incorporated by reference to
Exhibit 10.6B to the Company's 10-K for the fiscal year ended
October 31, 2000.
10.20A (c) Employment Agreement between the Company and Zach Lonstein,
dated as of January 1, 2005, incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K filed
January 5, 2005, superseding an Employment Agreement, dated as of
November 1, 1999, incorporated by reference to Exhibit 10.4 to
the Company's Form 10-Q for the period ended July 31, 2000.
10.20B (c) Amendment One to Employment Agreement between the Company
and Mr. Lonstein, effective as of May 9, 2007, incorporated by
reference to the Company's Quarterly Report on Form 10-Q filed
May 10, 2007.
10.21 (c) Stock Option Agreement under the Company's 2002 Stock Option
and Stock Appreciation Rights Plan, dated January 21, 2005,
between the Company and Zach Lonstein, incorporated by reference
to Exhibit 10.1 to the Company's Current Report on Form 8-K filed
November 5, 2004.
10.22A (c) Employment Agreement between the Company and Robert
Wallach, dated as of January 1, 2005, incorporated by reference
to Exhibit 10.2 to the Company's Current Report on Form 8-K filed
January 5, 2005, superseding an Employment Agreement, dated as of
November 1, 1999, incorporated by reference to Exhibit 10.5 to
the Company's Form 10-Q for the period ended July 31, 2000.
10.22B (c) Amendment One to Employment Agreement between the Company
and Mr. Wallach, dated as of December 22, 2006, incorporated by
reference to a Current Report on Form 8-K filed December 22,
2006.
10.22C (c) Amendment Two to Employment Agreement between the Company
and Mr. Wallach, effective as of May 9, 2007, incorporated by
reference to the Company's Quarterly Report on Form 10-Q filed
May 10, 2007.
10.24 (c) Employment Agreement between the Company and Lee C. Fields,
dated as of August 8, 2005, incorporated by reference to a
Current Report on Form 8-K filed August 9, 2005
EXHIBIT NO. DESCRIPTION
10.26A (c) Employment Agreement between the Company and Michael D.
Jones dated as of May 4, 2006, incorporated by reference to a
Current Report on Form 8-K filed May 8, 2006
10.26B (c) Special Sale Bonus Agreement between (i)Structure, LLC and
Mr. Jones, incorporated by reference to Exhibit 10.30 to the
Company's Annual Report on Form 10-K for December 31, 2005.
10.30 (a) Master Services Agreement dated as of May 24, 2001 among the
Company, Alicomp, a Division of Alicare, Inc. and ADT Security
Services, Inc., incorporated by reference to Exhibit 10.1A to a
Registration Statement No. 333-110173 on Form S-3 filed February
6, 2004.
10.31A Contract for Services between Verizon Information Technologies,
Inc. (now Infocrossing Healthcare Services, Inc.) and the State
of Missouri, including Amendments 1 through 6, (the "Missouri
Contract") incorporated by reference to the Company's Quarterly
Report on Form 10-Q for March 31, 2005.
10.31B Amendments no. 7 and 8 to the Missouri Contract, incorporated
by reference to Exhibit 10.32B to the Company's Quarterly Report
on Form 10-Q for September 30, 2006.
31 (b) Certifications required by Rule 13a-14(a) to be filed.
32 (b) Certifications required by Rule 13a-14(b) to be furnished but
not filed.
(a) Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
(b) Filed herewith.
(c) Management compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
INFOCROSSING, INC.
August 9, 2007 /s/ ZACH LONSTEIN
----------------------------------
Zach Lonstein
Chairman & Chief Executive Officer
August 9, 2007 /s/ WILLIAM J. McHALE
----------------------------------
William J. McHale
SVP - Finance and Chief Financial
Officer
EXHIBITS FILED HEREWITH
31 Certifications required by Rule 13a-14(a) and Section 302 of the
Sarbanes-Oxley Act of 2002 to be filed.
32 Certifications required by Rule 13a-14(b) and 18 U.S.C. Section
1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002) to be furnished but not filed.