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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
August 5, 2002
Date of Report: (Date of earliest event reported)
Commission File Number: 0-19024
FRONTSTEP, INC.
(Exact name of registrant as specified in its charter)
OHIO 31-1083175
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2800 CORPORATE EXCHANGE DRIVE
COLUMBUS, OHIO 43231
(Address of principal executive offices) (Zip Code)
(614) 523-7000
(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS.
Frontstep, Inc. (the "Company" or "Frontstep") is 1) restating its
Statements of Operations and its Balance Sheets for the year ended June 30, 2001
and for the nine months ended March 31, 2002 (the "Restatement"); and 2)
reclassifying the presentation of certain costs in its Statement of Operations
for the years ended June 30, 2000 and 2001 (the "Reclassification").
The Restatement is being made to correct the previously reported
financial results due to an isolated error in third-party software used by the
Company which affected the timing of recognition of revenue from renewals of the
Company's maintenance and support contracts during those reported periods. The
final fiscal quarter ended June 30, 2002 was not affected by the error. For the
nine-month period of fiscal 2002, which ended March 31, 2002, the impact of this
error was $312,000 on reported revenue of $70,457,000, or a net change of 0.4%.
The Company believes that the impact of this restatement to future periods is
positive since the balance of deferred revenue, revenue to be recorded in future
periods, increased by $1,522,000 as of March 31, 2002.
The Reclassification is being made to more appropriately present
certain charges in the Statements of Operations in accordance with current
accounting practice. This reclassification does affect the Year ended June 30,
2002 and does not change the amount of reported revenues, operating income or
net income for either of the two prior years that were affected.
THE RESTATEMENT: The Company uses certain third-party software to
calculate and account for revenues from renewals of its maintenance and support
services contracts. The error, which was isolated and occurred only in a certain
specific process, caused affected billing records to accelerate the timing of
recognition of revenue, and consequently understate the amount of deferred
revenue to be recognized in subsequent periods. Due to the limited number of
records affected, the error was difficult to detect. After detection by Company
personnel in July 2002, the third-party software provider identified the nature
of the error and assisted the Company in determining which maintenance and
support records had been affected. The error was associated with a specific
version of the software and affected only the period from July 2000 to March
2002. The Company had already installed a newer version of the software in which
properly accounts for revenue recognition in the specific affected process.
For the nine months ended March 31, 2002, this restatement will reduce
revenue by $312,000 or 0.4% of the previously reported revenue of $70,457,000.
This decrease in revenue will increase the reported net loss for the nine-month
period by 312,000 or 8.9% of the previously reported net loss of $3,504,000. The
balance sheet account entitled Deferred revenue will increase as of March 31,
2002 by $1,522,000 or 9.9% from the previously reported balance of $15,398,000.
For the year ended June 30, 2001, this restatement will reduce revenue
by $1,210,000 or 1.0% of the previously reported revenue of $118,286,000. This
decrease in revenue will increase the reported net loss for the year by
1,210,000 or 4.9% of the previously reported net loss of $24,854,000. The
balance sheet account entitled Deferred revenue will increase as of June 30,
2001 by $1,210,000 or 6.3% from the previously reported balance of $19,067,000.
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The correction of the error by reporting period is presented in the
table below (in thousands):
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TOTAL REVENUE ADJUSTMENT TOTAL NET INCOME NET INCOME
AS PREVIOUSLY OF REVENUE REVENUE, AS (LOSS), AS (LOSS), AS
REPORTED ADJUSTED PREVIOUSLY ADJUSTED
REPORTING PERIOD REPORTED
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Quarter ended September 30, 2000 $ 28,033 $ 32 $ 28,065 $ (3,549) $ (3,517)
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Quarter ended December 31, 2000 $ 34,063 $ (207) $ 33,856 $ (957) $ (1,164)
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Quarter ended March 31, 2001 $ 27,172 $ (838) $ 26,334 $(15,348) $(16,186)
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Quarter ended June 30, 2001 $ 29,018 $ (197) $ 28,821 $ (5,000) $ (5,197)
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Year ended June 30, 2001 $118,286 $(1,210) $ 117,076 $(24,854) $(26,064)
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Quarter ended September 30, 2001 $ 24,918 $ 53 $ 24,971 $ 144 $ 197
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Quarter ended December 31, 2001 $ 23,515 $ (144) $ 23,371 $ (2,699) $ (2,843)
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Quarter ended March 31, 2002 $ 22,024 $ (221) $ 21,803 $ (950) $ (1,171)
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Nine-months ended March 31, 2002 $ 70,457 $ (312) $ 70,145 $ (3,505) $ (3,817)
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THE RECLASSIFICATION: For the years ended June 30, 2000 and 2001, the
Company reported certain restructuring charges of $3,649,000 and $15,156,000,
respectively, for employee separation costs, exit costs for contract
terminations, accounts receivable write-offs and asset write-offs. All of these
one-time charges were incurred in connection with the Company's efforts to
return the Company to profitability through reductions in its worldwide
workforce, elimination of non-essential costs and activities and to focus the
business activities of the Company on its core strategy.
The Company has determined that certain of these costs presented as
restructuring and other charges are more appropriately presented on other lines
within the Statement of Operations. While there is no impact to previously
reported revenue, operating income or net income, the following
reclassifications are being made within the line items indicated below:
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For the year ended June 30, 2000 (in thousands):
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AS
PREVIOUSLY ADJUSTMENT AS
LINE ITEM REPORTED ADJUSTED
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Cost of revenue: Cost of license fees $19,636 $ 1,868 $21,504
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Operating expenses: Selling, general and $56,790 $ 714 $57,504
administrative
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Operating expenses: Restructuring and other $ 3,649 $(2,582) $ 1,067
charges
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For the year ended June 30, 2001 (in thousands):
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AS
PREVIOUSLY ADJUSTMENT AS
LINE ITEM REPORTED ADJUSTED
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Cost of revenue: Cost of license fees $19,972 $ 1,913 $21,885
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Operating expenses: Selling, general and $56,007 $ 6,840 $62,847
administrative
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Operating expenses: Restructuring and other $15,156 $(8,753) $ 6,403
charges
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As part of this reclassification, The Company is also providing
additional breakout of its reported revenues for each of the years ended June
30, 2000 and 2001 to be consistent with the manner in which it currently reports
such revenues. Commencing with the quarter ended December 31, 2001, the Company
began to separately report its revenues from maintenance and support activities
from its services activities. This additional revenue breakout does not change
the amount of total revenue reported for either of these two periods, nor does
it change reported operating or net income.
The Company has included schedules as exhibits to this current report
on Form 8-K showing the adjusted Statements of Operations for each of the years
ended June 30, 2000 and 2001 and for the nine-months ended March 31, 2002.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Not applicable.
(b) Not applicable.
(c) Exhibits.
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The following exhibits are filed with this Form 8-K:
99(a) Statements of Operations for the quarters included in and
for the year ended June 30, 2000, as adjusted.
99(b) Statements of Operations for the quarters included in and
for the year ended June 30, 2001, as adjusted.
99(c) Statements of Operations for the quarters included in and
for the nine-months ended March 31, 2002, as adjusted
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FRONTSTEP, INC.
Dated: July 12, 2002 By: /s/ Daniel P. Buettin
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Daniel P. Buettin
Vice President and Chief
Financial Officer
(on behalf of the Registrant and as
Principal Financial Officer)
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INDEX TO EXHIBITS
99(a) Statements of Operations for the quarters included in and
for the year ended June 30, 2000, as adjusted.
99(b) Statements of Operations for the quarters included in and
for the year ended June 30, 2001, as adjusted.
99(c) Statements of Operations for the quarters included in and
for the nine-months ended March 31, 2002, as adjusted
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