UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2008
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission file number 0-29154
IONA Technologies PLC
(Exact name of registrant as specified in its charter)
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Ireland
(State or other jurisdiction of
incorporation or organization)
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N/A
(I.R.S. Employer
Identification No.)
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The IONA Building
Shelbourne Road, Ballsbridge
Dublin 4, Ireland
(Address of principal executive offices)
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N/A
(Zip Code)
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+353-1-637-2000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ
Yes
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No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
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Yes
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No
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date:
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Class
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Outstanding at April 30, 2008
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Ordinary Shares, par value
0.0025 per share
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36,804,418
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Part I. FINANCIAL INFORMATION
Item 1.
Financial Statements
IONA Technologies PLC
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
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March 31,
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2008
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December 31,
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(Unaudited)
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2007
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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29,354
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$
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21,767
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Restricted cash
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200
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200
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Marketable securities
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8,514
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34,514
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Accounts receivable, net of allowance of $402 and $583, respectively
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13,029
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12,378
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Prepaid expenses
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2,735
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2,138
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Deferred tax asset current
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888
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888
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Other assets current
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169
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190
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Total current assets
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54,889
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72,075
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Property and equipment, net of accumulated depreciation of $18,239 and $17,865, respectively
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2,618
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2,644
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Goodwill and intangible assets
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9,949
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10,149
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Marketable securities, non-current
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17,197
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Deferred tax asset
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1,040
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1,040
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Other assets
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422
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388
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Total assets
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$
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86,115
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$
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86,296
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LIABILITIES AND SHAREHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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786
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$
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1,470
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Accrued payroll and related expenses
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4,436
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4,946
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Deferred revenue
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20,469
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15,931
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Other accrued liabilities
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12,480
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10,498
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Total current liabilities
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38,171
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32,845
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Long-term deferred revenue
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1,268
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1,317
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Other non-current liabilities
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1,731
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2,583
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Shareholders equity:
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Ordinary shares,
0.0025 par value, 150,000,000 shares authorized;
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36,789,406 and 36,531,565, respectively,
shares issues and outstanding
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101
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101
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Additional paid-in capital
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509,796
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508,474
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Accumulated deficit
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(464,156
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(459,032
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Accumulated other comprehensive (loss) / income
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(796
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8
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Total shareholders equity
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44,945
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49,551
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Total liabilities and shareholders equity
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$
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86,115
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$
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86,296
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The accompanying notes are an integral part of these condensed consolidated financial statements.
1.
IONA Technologies PLC
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except share and per share data)
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Three Months Ended
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March 31,
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2008
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2007
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Revenue:
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Product revenue
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$
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6,596
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$
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6,268
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Service revenue
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9,845
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9,314
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Total revenue
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16,441
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15,582
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Cost of revenue:
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Cost of product revenue
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187
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230
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Cost of service revenue
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3,835
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3,453
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Total cost of revenue
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4,022
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3,683
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Gross profit
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12,419
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11,899
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Operating expenses:
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Research and development
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4,921
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4,427
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Sales and marketing
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7,209
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7,851
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General and administrative
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4,009
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3,126
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Amortization of intangible assets
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52
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8
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Restructuring
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1,529
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Total operating expenses
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17,720
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15,412
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Loss from operations
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(5,301
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(3,513
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Interest income, net
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499
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575
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Net exchange gain
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69
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13
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Loss before provision / (benefit) for income taxes
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(4,733
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(2,925
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Provision / (benefit) for income taxes
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391
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(77
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Net loss
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$
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(5,124
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$
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(2,848
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Basic and diluted net loss per
ordinary share and per ADS
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$
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(0.14
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$
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(0.08
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Shares used in computing
basic and diluted net loss per ordinary share
and per ADS
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36,643
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36,074
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2.
IONA Technologies PLC
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
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Three Months Ended
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March 31,
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2008
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2007
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net loss
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$
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(5,124
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$
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(2,848
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Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
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Depreciation and amortization
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380
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413
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Amortization
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199
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69
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Share-based compensation
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609
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1,353
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Realized gain on marketable securities
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(15
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(175
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Loss on disposal of assets
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5
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Recovery of bad debt expense
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(161
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(184
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Deferred income taxes
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(409
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Changes in operating assets and liabilities:
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Accounts receivable
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(490
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7,182
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Prepaid expenses
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(597
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(1,198
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Other assets
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(13
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(25
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Accounts payable
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(684
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)
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947
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Accrued payroll and related expenses
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(510
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(3,156
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Other liabilities
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1,130
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(602
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Deferred revenue
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4,489
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7,370
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Net cash (used in) provided by operating activities
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(782
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8,737
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Business acquired in purchase transaction, net of cash acquired
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(7,286
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Sales of marketable securities
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18,750
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3,200
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Purchases of marketable securities
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(10,735
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(3,925
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Purchases of property and equipment
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(359
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(149
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Net cash provided by (used in) investing activities
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7,656
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(8,160
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)
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Proceeds from exercise of stock options
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497
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610
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Proceeds from employee share purchase plan
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216
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309
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Net cash provided by financing activities
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713
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919
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NET INCREASE IN CASH AND CASH EQUIVALENTS
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7,587
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1,496
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CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
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21,767
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37,569
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CASH AND CASH EQUIVALENTS AT END OF PERIOD
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$
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29,354
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$
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39,065
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3.
IONA Technologies PLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Basis of Presentation and New Accounting Standards
These condensed consolidated financial statements have been prepared by IONA Technologies PLC,
referred to as IONA or the Company, pursuant to the rules and regulations of the Securities and
Exchange Commission, or SEC, and in accordance with United States generally accepted accounting
principles, or U.S. GAAP, for interim financial information. Accordingly, certain information and
footnote disclosures normally included in annual financial statements have been omitted or
condensed. In the opinion of management, all necessary adjustments (consisting of normal recurring
accruals and adjustments to estimates of restructuring charges) have been made for a fair
presentation of the Companys financial position, results of operations and cash flows at the dates
and for the periods presented. The operating results for the three months ended March 31, 2008 are
not necessarily indicative of the results that may be expected for the year ending December 31,
2008. For further information, refer to the consolidated financial statements and footnotes for the
year ended December 31, 2007 included in the Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2007, filed with the SEC on March 14, 2008.
The preparation of financial statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the amounts reported in the financial statements and the
accompanying footnotes. Actual results could differ from those estimates.
Certain amounts reported in prior periods have been reclassified in this report to conform to the
presentation used for the current period. The Company reclassified forty eight thousand dollars
from amortization of intangible assets to cost of product revenue in its condensed consolidated
statement of operations for the three months ended March 31, 2007. Additionally, the Company
reclassified $1.3 million related to its tax liabilities from other accrued liabilities to other
non-current liabilities in its condensed consolidated balance sheet as of December 31, 2007.
In September 2006, the Financial Accounting Standards Board, or FASB, issued Statement of Financial
Accounting Standards No. 157,
Fair Value Measurements,
or SFAS 157, which defines fair value,
establishes a framework for measuring fair value, and expands disclosures about fair value
measurements. The provisions of SFAS 157 were effective for the Company as of January 1, 2008. The
adoption of SFAS 157 did not have a material impact on the Companys condensed consolidated
financial statements.
In February 2007, FASB issued Statement of Financial Accounting Standards No. 159,
The Fair Value
Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No.
115,
or SFAS 159. SFAS 159 permits a company to choose, at specified election dates, to measure at
fair value certain eligible financial assets and liabilities that are not currently required to be
measured at fair value. The specified election dates include, but are not limited to, the date when
an entity first recognizes the item, when an entity enters into a firm commitment, or when changes
in the financial instrument causes it to no longer qualify for fair value accounting under a
different accounting standard. An entity may elect the fair value option for eligible items that
exist at the effective date. At that date, the difference between the carrying amounts and the fair
values of eligible items for which the fair value option is elected should be recognized as a
cumulative effect adjustment to the opening balance of retained earnings. The fair value option may
be elected for each entire financial instrument, but need not be applied to all similar
instruments. Once the fair value option has been elected, it is irrevocable. Unrealized gains and
losses on items for which the fair value option has been elected will be reported in earnings. The
accounting provisions of SFAS 159 were effective for the Company beginning January 1, 2008. The
Company did not elect the fair value option for eligible financial assets and liabilities that are
currently not required to be measured at fair value.
In December 2007, FASB issued Statement of Financial Accounting Standards No. 141R,
Business
Combinations
, or SFAS 141R. SFAS 141R establishes principles and requirements for how an acquirer
(a) recognizes and measures in its financial statements the identifiable assets acquired,
liabilities assumed and any noncontrolling interest in the acquiree; (b) recognizes and measures
the goodwill acquired in the business combination or a gain from a bargain purchase; and (c)
determines what information to disclose to enable users of the financial statements to evaluate the
4.
nature and financial effects of the business combination. SFAS 141R applies prospectively to all
business combination transactions for which the acquisition date is on or after January 1, 2009.
The adoption of SFAS 141R is not expected to have a material impact on the Companys condensed
consolidated financial statements.
In December 2007, FASB issued Statement of Financial Accounting Standards No. 160,
Noncontrolling
Interests in Consolidated Financial Statements an amendment of Accounting Research Bulletin
(ARB) No. 51
, or SFAS 160. SFAS 160 requires (1) presentation of ownership interests in
subsidiaries held by parties other than the parent within equity in the consolidated statements of
financial position, but separately from the parents equity; (2) separate presentation of the
consolidated net income attributable to the parent and to the minority interest on the face of the
consolidated statements of income; (3) accounting for changes in a parents ownership interest
where the parent retains its controlling financial interest in its subsidiary as equity
transactions; (4) initial measurement of the noncontrolling interest retained for any
deconsolidated subsidiaries at fair value with recognition of any resulting gains or losses through
earnings; and (5) additional disclosures that identify and distinguish between the interests of the
parent and noncontrolling owners. The provisions of SFAS 160 are effective for us beginning January
1, 2009. The adoption of SFAS 160 is not expected to have a material impact on the Companys
condensed consolidated financial statements.
In March 2008, FASB issued Statement of Financial Accounting Standards No. 161,
Disclosures about
Derivative Instruments and Hedging Activitiesan amendment of FASB Statement No. 133
, or SFAS 161.
SFAS 161 requires enhanced disclosures about an entitys derivative and hedging activities. SFAS
161 is intended to enhance the current disclosure framework in FASB Statement No. 133 and requires
additional information about how and why derivative instruments are being used, how derivative
instruments and related hedged items are accounted for under FASB Statement No. 133 and its related
interpretations, and how derivative instruments and related hedged items affect the Companys
financial position, financial performance and cash flow. This Statement is effective for financial
statements issued for fiscal years and interim periods beginning after November 15, 2008. Adoption
of SFAS 161 is not expected to have a material impact on the Companys condensed consolidated
financial statements.
2. Revenue Recognition
The Companys revenue is derived from product license fees and charges for professional services.
The Company follows the revenue recognition criteria of Statement of Position 97-2,
Software
Revenue Recognition
, as amended by SOP 98-4 and SOP 98-9, issued by the Accounting Standards
Executive Committee of the American Institute of Certified Public Accountants and its related
interpretations, or collectively, SOP 97-2.
The Company does not enter into arrangements to deliver software requiring significant production,
modification or customization to its software products.
Under the terms of SOP 97-2, the Company recognizes revenue when all of the following criteria are
met:
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persuasive evidence of an arrangement exists;
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delivery has occurred;
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customer fee is fixed or determinable; and
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collection is probable.
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For arrangements with multiple elements, the Company allocates revenue to each element of a
transaction based upon its fair value as determined by vendor specific objective evidence, or VSOE,
of fair value. VSOE of fair value for each element of an arrangement is based upon the normal
pricing and discounting practices for each element when sold separately, including the renewal rate
for support services. The Company maintains management approved price lists for its product
licenses, customer support and professional services. The Company infrequently offers discounts on
its customer support or professional services, and if offered, such discounts are usually
insignificant. If the Company cannot objectively determine the fair value of any undelivered
element included in the multiple element arrangement, revenue is deferred until all elements are
delivered, services have been performed, or until fair value can be objectively determined. When
the fair value of a delivered element cannot be established, the
5.
Company uses the residual method of accounting to record revenue, provided the fair value of all
undelivered elements is determinable. Under the residual method, the fair value of the undelivered
elements is deferred and recognized as delivered and the remaining portion of accounting
arrangement fee is allocated to the delivered elements and is recognized as revenue.
The Company believes that its normal pricing and discounting practices provide a basis for
establishing VSOE of fair value for the undelivered elements based on the following facts:
|
|
|
Support contracts are regularly sold on a stand-alone basis to customers that choose to
renew the support contract beyond the initial term. Support contract pricing is based on
established list pricing. Renewal purchases at consistent pricing provide the basis for
VSOE on the support contracts. Support revenue is recognized ratably over the contract
term.
|
|
|
|
|
Consulting contracts are regularly sold on a stand-alone basis to customers requesting
these services. Consulting contract pricing is at a daily flat rate and customers purchase
an appropriate number of service days. The consulting services delivered on a stand-alone
basis at consistent pricing provide the basis for VSOE on the consulting contracts.
Consulting revenue is recognized as the services are performed.
|
The Company performs an annual analysis of all contracts to ensure that the actual allocation of
fair value to undelivered elements is not significantly different from the established VSOE rates
for the individual elements. The analysis is segmented by level of support and type of customer
(i.e., end-user licensee or licensee with rights of distribution).
The Company assesses whether fees are fixed or determinable at the time of sale and recognizes
revenue if all other revenue recognition requirements are met. The Companys standard payment terms
are generally net 30 days. Payment terms, however, may vary based on the country in which the
agreement is executed. Payments that extend beyond 30 days from the contract date, but that are due
within twelve months, are generally deemed to be fixed or determinable based on the Companys
successful collection history on such arrangements, and thereby satisfy the required criteria for
revenue recognition.
The Company assesses whether collection is probable at the time of the transaction based on a
number of factors, including the customers past transaction history and credit-worthiness. If the
Company determines that the collection of the fee is not probable, the fee is deferred and revenue
is recognized at the time collection becomes probable, which is generally upon the receipt of cash.
The Company delivers products electronically or by overnight courier F.O.B origin, and its software
arrangements typically do not contain acceptance provisions. Accordingly, delivery is usually
satisfied when the customer has been provided with access codes to allow them to take immediate
possession of the software, or when shipped by courier, when the product leaves the Companys
premises.
Revenue from royalty arrangements in excess of guaranteed amounts is recognized upon notification
of such royalties becoming payable by the customer.
3. Share-Based Compensation Plans
The following table summarizes share-based compensation expense under Statement of Financial
Accounting Standards No. 123R,
Accounting for Stock-Based Compensation,
or SFAS 123R, for the
periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Employee share options *
|
|
$
|
575
|
|
|
$
|
1,232
|
|
Employee share purchases *
|
|
|
34
|
|
|
|
56
|
|
Phantom share units *+
|
|
|
|
|
|
|
65
|
|
|
|
|
|
|
|
|
Total share-based compensation
|
|
$
|
609
|
|
|
$
|
1,353
|
|
|
|
|
|
|
|
|
6.
Options, shares and units, respectively, are subject to:
* service conditions
+ performance conditions
1999 Employee Share Purchase Plan
In August 1999, the Company established a qualified Employee Share Purchase Plan, the terms of
which allow for qualified employees (as defined therein) to participate in the purchase of
designated shares of the Companys ordinary shares, par value
0.0025 per share, at a price equal
to the lower of 85% of the closing price at the beginning and end of each semi-annual share
purchase period. As of March 31, 2008, 1,605,877 shares have been issued under the plan and 394,123
shares were reserved for future purchases.
Employee Share-Based Compensation Plans
The Company has share-based compensation plans under which employees, consultants, directors and
officers may be granted share options. Options are granted with exercise prices not less than the
fair market value of our ordinary shares on the grant date, generally vest over 4 years and expire
7 or 10 years after the grant date, or five years from the date of grant in the case of an
incentive share option granted to an employee holding more than 10% of the total combined voting
power of the Company. Additionally, the 2006 Share Incentive Plan provides for the grant of
restricted share awards, phantom share units, share appreciation rights and other share-based
awards, including the grant of shares based upon certain conditions such as performance-based
conditions and the granting of securities convertible into ordinary shares. The 2006 Share
Incentive Plan was approved by the Companys shareholders on August 23, 2006. The 2006 Share
Incentive Plan replaced the Companys 1997 Share Option Scheme and 1997 Director Share Option
Scheme, both of which expired in 2007. Under the 2006 Share Incentive Plan, 4,000,000 new shares
may be used for the issuance of awards. In addition, shares underlying any award granted and
outstanding under the Companys 1997 Share Option Scheme as of the adoption date of the 2006 Share
Incentive Plan that are forfeited, cancelled, held back upon exercise of an option or settlement of
an award to cover the exercise price or tax withholding, reacquired by the Companys prior to
vesting, satisfied without the issuance of shares or otherwise terminated (other than by exercise),
after the adoption date are available for future grants under the 2006 Share Incentive Plan.
The following table sets forth information related to the Companys five equity compensation plans
as of March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for
|
Plan
|
|
Authorized
|
|
Outstanding
|
|
Future Grants
|
1997 Share Option Scheme
|
|
|
12,900,000
|
|
|
|
5,162,777
|
|
|
|
|
|
2006 Share Incentive Plan
|
|
|
4,000,000
|
|
|
|
1,518,750
|
|
|
|
3,945,924
|
*
|
1997 Director Share Option Scheme
|
|
|
500,000
|
|
|
|
351,000
|
|
|
|
|
|
Genesis Development Corporation 1997 Stock Option Plan
|
|
|
|
**
|
|
|
228
|
|
|
|
|
|
Netfish Technologies, Inc. 1999 Stock Option Plan
|
|
|
|
**
|
|
|
25,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,400,000
|
|
|
|
7,058,349
|
|
|
|
3,945,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Includes 1,533,986 shares, as of March 31, 2008, from the 1997 Share Option Scheme and 1997
Director Share Option Scheme that were forfeited, cancelled, held back upon exercise of an
option or settlement of an award to cover the exercise price or tax withholding, reacquired by
the Company prior to vesting, satisfied without the issuance of shares or otherwise terminated
(other than by exercise).
|
|
**
|
|
In connection with acquisitions of Genesis Development Corporation and Netfish Technologies,
Inc., or Netfish, all of the outstanding share options for these plans were converted into
options to purchase the Companys ordinary shares.
|
7.
General Share-Based Awards Information
A summary of the Companys share option activity and related information for the quarter ended
March 31, 2008 follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
Average
|
|
|
|
of Awards
|
|
|
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding at December 31, 2007
|
|
|
7,999
|
|
|
$
|
4.84
|
|
Granted
|
|
|
218
|
|
|
|
3.50
|
|
Forfeitures
|
|
|
(983
|
)
|
|
|
4.43
|
|
Exercised
|
|
|
(176
|
)
|
|
|
2.82
|
|
|
|
|
|
|
|
|
Balance outstanding at March 31, 2008
|
|
|
7,058
|
|
|
$
|
4.91
|
|
|
|
|
|
|
|
|
The following table summarizes information concerning outstanding and exercisable options as of
March 31, 2008 (shares and aggregate intrinsic values in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
Aggregate
|
|
Range of
|
|
Number of
|
|
|
Contractual Life
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
Number of
|
|
|
Contractual Life
|
|
|
Exercise
|
|
|
Intrinsic
|
|
Exercise Prices
|
|
Shares
|
|
|
(Years)
|
|
|
Price
|
|
|
Value
|
|
|
Shares
|
|
|
(Years)
|
|
|
Price
|
|
|
Value
|
|
$1.99 $3.50
|
|
|
2,520
|
|
|
6.1
|
|
|
$
|
2.78
|
|
|
$
|
2,762
|
|
|
|
2,091
|
|
|
5.8
|
|
|
$
|
2.71
|
|
|
$
|
2,457
|
|
$3.51 $5.00
|
|
|
1,724
|
|
|
7.9
|
|
|
|
4.13
|
|
|
|
95
|
|
|
|
785
|
|
|
7.4
|
|
|
|
4.25
|
|
|
|
14
|
|
$5.01 $6.50
|
|
|
1,893
|
|
|
7.8
|
|
|
|
5.45
|
|
|
|
|
|
|
|
787
|
|
|
6.8
|
|
|
|
5.34
|
|
|
|
|
|
$6.51 $8.00
|
|
|
756
|
|
|
5.6
|
|
|
|
7.34
|
|
|
|
|
|
|
|
756
|
|
|
5.6
|
|
|
|
7.34
|
|
|
|
|
|
$8.01 $74.50
|
|
|
165
|
|
|
2.3
|
|
|
|
28.17
|
|
|
|
|
|
|
|
165
|
|
|
2.3
|
|
|
|
28.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,058
|
|
|
6.9
|
|
|
$
|
4.91
|
|
|
$
|
2,857
|
|
|
|
4,584
|
|
|
6.1
|
|
|
$
|
5.10
|
|
|
$
|
2,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value,
based on the Companys closing share price of $3.88 on March 31, 2008, that would have been
received by the option holders had they exercised their options as of that date. During the three
months ended March 31, 2008, the total intrinsic value of options exercised was $0.1 million. The
unamortized fair value of options as of March 31, 2008, was $4.7 million with a weighted-average
remaining recognition period of 1.3 years.
Valuation and Expense Information under SFAS 123R
The following table summarizes share-based compensation expense related to employee share options,
employee share purchases, and restricted share grants under SFAS 123R for the periods presented
which was allocated as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2008
|
|
2007
|
Cost of service revenue
|
|
$
|
98
|
|
|
$
|
143
|
|
Research and development
|
|
|
185
|
|
|
|
290
|
|
Sales and marketing
|
|
|
176
|
|
|
|
454
|
|
General and administrative
|
|
|
150
|
|
|
|
466
|
|
The weighted-average estimated fair value of employee share options granted during the three months
ended March 31, 2008 and 2007 was $1.40 per share and $2.94 per share, respectively, using the
Black Scholes option-pricing model with the following weighted-average assumptions:
8.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2008
|
|
2007
|
|
Risk-free interest rate
|
|
|
2.1
|
%
|
|
|
4.5
|
%
|
Expected dividend yield
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
56.3
|
%
|
|
|
67.8
|
%
|
Expected life (years)
|
|
|
3.02
|
|
|
|
3.90
|
|
The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The
Company uses the straight-line method for expense attribution. The dividend yield of zero is based
on the fact that the Company has never paid cash dividends and has no present intention to pay cash
dividends. Expected volatility is based on historical volatility of the Companys shares over the
period commensurate with the expected life of the options. The expected life of options granted is
derived from historical data on employee exercise and post-vesting employment termination behavior.
The Companys estimated option forfeiture rate in the three months ended March 31, 2008 and 2007,
based on its historical option forfeiture experience, was approximately 13% and 8%, respectively.
The Company will record additional expense if the actual option forfeitures are lower than
estimated and will record a recovery of prior expense if the actual option forfeitures are higher
than estimated.
The fair value for rights to purchase shares under the 1999 Employee Share Purchase Plan was
estimated at the date of grant using the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2008
|
|
2007
|
|
Risk-free interest rate
|
|
|
3.0
|
%
|
|
|
5.1
|
%
|
Expected dividend yield
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
25.0
|
%
|
|
|
67.8
|
%
|
Expected life (years)
|
|
|
0.5
|
|
|
|
0.5
|
|
4. Restricted Cash
At March 31, 2008, the Company has $0.2 million in restricted cash deposits with Citizens Bank,
which includes an annual renewable letter of credit for a certain leased facility. Should the
Company not renew this letter of credit or default on its rental obligation, $0.2 million will be
payable to the lessor.
5. Fair Value Measurements
As stated in Note 1,
Basis of Presentation & New Accounting Standards
, effective January 1, 2008,
the Company adopted SFAS 157 which requires disclosures about fair value measurements for its
assets and liabilities that are re-measured and reported at fair value at each reporting period,
and its assets and liabilities that are re-measured and reported at fair value on a non-recurring
basis.
9.
The following table presents information about the Companys assets that are measured at fair value
at each reporting period as of March 31, 2008, and indicates the fair value hierarchy of the
valuation techniques utilized to determine such fair value. In general, fair values determined by
level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or
liabilities. Fair values determined by level 2 inputs utilize data points that are observable such
as quoted prices, interest rates and yield curves. Fair values determined by level 3 inputs are
unobservable data points for the asset or liability, and include situations where there is little,
if any, market activity for the asset or liability.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2008
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
29,554
|
|
|
$
|
27,210
|
|
|
$
|
2,344
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
25,711
|
|
|
|
|
|
|
|
8,514
|
|
|
|
17,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
55,265
|
|
|
$
|
27,210
|
|
|
$
|
10,858
|
|
|
$
|
17,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2008, the Company held $18.0 million (par value) of investments comprised of auction
rate securities, or ARSs, which are variable-rate debt securities that are backed by student loans
and have long-term maturities with interest rates that are set and reset through Dutch auction
processes that are typically held every 7, 28 or 35 days. The ARSs have historically traded at par
value and are callable at par value at the option of the issuer. Interest is typically paid at the
end of each auction period. At March 31, 2008, all of the ARSs the Company held were AAA/Aaa
rated, collateralized by student loans guaranteed by the U.S. government under the Federal Family
Education Loan Program. Until February 2008, the auction rate securities market was highly liquid.
Beginning in the week of February 11, 2008, a substantial number of auctions failed, meaning that
there was insufficient demand to sell all of the securities that holders desired to sell at
auction. The immediate effect of a failed auction is that the holders of such securities cannot
sell the securities at auction and the interest rate on the security generally resets to a maximum
auction rate. With respect to the ARSs held by the Company, because of the failed auctions, the
ARSs are currently not deemed liquid. As a result, the Company may not be able to access these
funds without a loss of principal, unless a future auction on these investments is successful or
the issuer calls the security pursuant to a mandatory tender or redemption prior to maturity. Due
to these recent changes and uncertainty in the ARS market, the Company believes the recovery period
for these investments is likely to be longer than 12 months and as a result, has classified these
investments as long-term as of March 31, 2008.
At March 31, 2008, there was insufficient observable ARS market information available to determine
the fair value of the Companys investments. Therefore, the Company estimated fair value by
incorporating assumptions that market participants would use in their estimates of fair value using
a discounted cash flows methodology. Some of these assumptions included credit quality, expected
length of time the ARS is expected to be held, expected cash flows during the holding period and a
risk adjusted discount rate. Based on this analysis, the Company recorded a temporary impairment to
other comprehensive loss of $0.8 million related to its ARS investments as of March 31, 2008. The
Company believes this temporary impairment is primarily attributable to the limited liquidity of
these investments and the length of time the Company may have to hold the ARSs to realize par
value.
10.
The table below includes a roll-forward of the Companys investments in ARS from January 1, 2008 to
March 31, 2008, and a reclassification of these investments from level 2 to level 3 in the
valuation hierarchy. When a determination is made to classify a financial instrument within level
3, the determination is based upon the significance of the unobservable parameters to the overall
fair value measurement. However, the fair value determination for level 3 financial instruments may
include observable components.
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Other
|
|
|
Significant
|
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Inputs
|
|
|
Inputs
|
|
(in thousands)
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
Fair value January 1, 2008
|
|
$
|
20,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
3,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
(5,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers (out) in
|
|
|
(18,000
|
)
|
|
|
18,000
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses
1
|
|
|
|
|
|
|
(803
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value March 31, 2008
|
|
$
|
|
|
|
$
|
17,197
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Unrealized gains and losses on available for sale securities
are recorded as a separate component of accumulated other
comprehensive loss in the shareholders equity section of the
condensed consolidated balance sheet.
|
The Company has no reason to believe that any of the underlying issuers of its ARSs are presently
at imminent risk of default. However, if the issuer is unable to successfully close future auctions
and their credit worthiness deteriorates, the Company may be required to adjust the carrying value
of the ARSs through an impairment charge to the statement of operations. Through May 9, 2008, the
Company has continued to receive interest payments on the ARSs in accordance with their terms. The
Company believes it will ultimately be able to liquidate its investments without significant loss
of principal primarily due to the collateral securing the ARSs. However, it could take until final
maturity of the ARSs (from 19 to 39 years) to realize the Companys investments par value.
6. Marketable Securities
The Company purchases investments and marketable securities that have been designated as
available-for-sale in accordance with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities or SFAS No. 115
.
Available-for-sale securities are carried at fair value with the unrealized gains and losses
reported in Accumulated Other Comprehensive Income, a component of stockholders equity.
11.
The components of marketable securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2008
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Market
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
(U.S. dollars in thousands)
|
|
|
|
Auction rate securities
|
|
$
|
18,000
|
|
|
$
|
|
|
|
$
|
(803
|
)
|
|
$
|
17,197
|
|
Fixed income securities
|
|
|
2,046
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
2,042
|
|
Commercial paper
|
|
|
6,462
|
|
|
|
11
|
|
|
|
|
|
|
|
6,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
$
|
26,508
|
|
|
$
|
11
|
|
|
$
|
(807
|
)
|
|
$
|
25,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Market
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
(U.S. dollars in thousands)
|
|
|
|
Auction rate securities
|
|
$
|
20,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
20,000
|
|
Fixed income securities
|
|
|
8,000
|
|
|
|
8
|
|
|
|
|
|
|
|
8,008
|
|
Commercial paper
|
|
|
6,506
|
|
|
|
|
|
|
|
|
|
|
|
6,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
$
|
34,506
|
|
|
$
|
8
|
|
|
$
|
|
|
|
$
|
34,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. Accumulated Other Comprehensive Loss
The Company accounts for comprehensive income (loss) in accordance with the provisions of Statement
of Financial Accounting Standards No. 130,
Reporting Comprehensive Income,
or SFAS 130. SFAS 130
establishes guidelines for the reporting and display of comprehensive income and its components in
the financial statements. The components of comprehensive loss, net of tax, are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Net loss
|
|
$
|
(5,124
|
)
|
|
$
|
(2,848
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
Unrealized holding (losses) gains arising
during period
|
|
|
(781
|
)
|
|
|
175
|
|
Less: reclassification adjustment for gains
realized in net income
|
|
|
15
|
|
|
|
175
|
|
|
|
|
|
|
|
|
Net unrealized losses on investments
|
|
|
(796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
$
|
(5,920
|
)
|
|
$
|
(2,848
|
)
|
|
|
|
|
|
|
|
8. Advanced Billings
The Companys accounts receivable and deferred revenue balances are shown net of advanced billings.
Advanced billings consist of post-contract customer support amounts which have been invoiced as of
the end of the period but the term of the support has not commenced or payment has not been
received. Accounts receivable and deferred revenue balances are shown net of advanced billings of
$1.5 million and $5.6 million at March 31, 2008 and December 31, 2007, respectively.
12.
9. Goodwill and Intangible Assets
Goodwill and intangible assets related to acquisitions completed in 2007 consist of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Net
|
|
|
|
Amortization
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Period (Years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Goodwill
|
|
|
|
|
|
$
|
7,521
|
|
|
$
|
|
|
|
$
|
7,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
4
|
|
|
|
2,350
|
|
|
|
(635
|
)
|
|
|
1,715
|
|
Customer relationships
|
|
5
|
|
|
|
730
|
|
|
|
(148
|
)
|
|
|
582
|
|
Non-competition agreements
|
|
3
|
|
|
|
200
|
|
|
|
(69
|
)
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable intangible assets
|
|
|
|
|
|
|
3,280
|
|
|
|
(852
|
)
|
|
|
2,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and intangible assets
|
|
|
|
|
|
$
|
10,801
|
|
|
$
|
(852
|
)
|
|
$
|
9,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual amortization expense related to intangible assets for the remainder of fiscal 2008 and the
following fiscal years is expected to be as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
Amortization expense
|
|
$
|
600
|
|
|
$
|
800
|
|
|
$
|
747
|
|
|
$
|
244
|
|
|
$
|
37
|
|
10. Restructurings
On January 11, 2008, the Company committed to a cost reduction plan focused on streamlining its
operations and the elimination of certain fixed costs. This includes costs associated with a
reduction in workforce of 47 employees across the organization and other direct costs. During the
three months ended March 31, 2008, the Company incurred a total of $1.5 million in severance
payments and related costs in connection with these actions. The Company expects to cease use of
excess facilities and incur the remaining workforce reduction costs and other direct costs under
this plan during the second quarter of 2008. The Company is currently exploring its options to
mitigate its affected real estate lease obligations. At this time, the Company is unable to
estimate the amount or range of additional costs under its real estate obligations.
In addition, during prior periods, the Companys management and Board of Directors approved
restructuring plans, which included consolidation of excess facilities, reductions in workforce,
and other related costs.
The following sets forth the Companys accrued restructuring costs as of March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
|
|
|
|
Excess
|
|
|
and Other
|
|
|
|
|
|
|
Facilities
|
|
|
Direct Costs
|
|
|
Total
|
|
(U.S. dollars in thousands)
|
|
|
|
Balance at December 31, 2007
|
|
$
|
2,391
|
|
|
$
|
|
|
|
$
|
2,391
|
|
2008 charges
|
|
|
|
|
|
|
1,529
|
|
|
|
1,529
|
|
Cash outlays in 2008
|
|
|
|
|
|
|
(1,238
|
)
|
|
|
(1,238
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2008
|
|
$
|
2,391
|
|
|
$
|
291
|
|
|
$
|
2,682
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2008, the Company had approximately $2.7 million of accrued restructuring charges
of which $2.4 million related to excess facilities and the remaining $0.3 million related to
severance and related costs. At March 31, 2008, approximately $2.3 million of these charges are
included in other accrued liabilities since net cash outlays
13.
are expected within twelve months and the remaining $0.4 million are included in other non-current
liabilities since net cash outlays are expected to be made through the end of 2013.
11. Net Loss Per Ordinary Share and ADS
For the three months ended March 31, 2008 and 2007, all share options outstanding have been
excluded from the calculation of the diluted net loss per share because all such securities were
antidilutive. The total number of shares related to the outstanding options that were excluded
from the calculations of diluted net loss per share was 7,058,349 and 7,830,341 for the three
months ended March 31, 2008 and 2007, respectively.
12. Income Taxes
Provision for income taxes was $0.4 million for the three months ended March 31, 2008 compared to a
$0.1 million benefit for income taxes for the three months ended March 31, 2007. During the three
months ended March 31, 2008, the Company recorded a decrease in its liability for unrecognized tax
benefits of approximately $0.1 million as a result of the lapse of the statute of limitations in a
certain tax jurisdiction. This decrease resulted in a $0.1 million effective tax rate benefit for
the quarter. During the three months ended March 31, 2007, based upon the Companys U.S. operating
results and an assessment of its expected future results, the Company concluded that, more likely
than not, it would be able to realize a portion of its U.S. net operating loss carry forward tax
assets prior to their expiration. As a result, the Company reduced its valuation allowance
resulting in recognition of a deferred tax asset of $0.4 million. The residual provision for income
taxes of $0.5 million in 2008 and the provision for income taxes of $0.3 million in 2007, reflects
taxes in connection with the proportion of income in jurisdictions outside of the Republic of
Ireland.
During the fourth quarter ended December 31, 2007, based upon the Companys U.S. operating results
and an assessment of its expected future U.S. results, the Company concluded that, it was more
likely than not, that it would be able to realize a portion of its U.S. deferred tax assets and net
operating loss carryforwards prior to their expiration. As a result, the Company reduced its
deferred tax asset valuation allowance related to U.S. deferred tax assets in 2007, resulting in
recognition of a deferred tax asset of $2.0 million. This was partially offset by the recognition
of $0.1 million in deferred tax liabilities in Japan. The Company will continue to review its
operating results to determine if it becomes more likely than not that its deferred tax assets will
be realized in the future, at which time the Company would release some or all of the valuation
allowance. The reduction in the Companys valuation allowance in 2007 resulted in an income tax
benefit during that year. As a result, the Company has recorded an increase in the provision for
income taxes during the three months ended March 31, 2008. The Company may record additional
deferred tax benefits in future periods if it expects to utilize additional deferred tax assets.
This analysis is largely based on the Companys assessment of future income which is closely
connected to its budgeting process, which takes place in the fourth quarter of each year.
13. Segment Information
The Company follows Statement of Financial Accounting Standards No. 131,
Disclosures About Segments
of an Enterprise and Related Information,
or SFAS 131. SFAS 131 establishes standards for reporting
information about operating segments. Operating segments are defined in SFAS 131 as components of
an enterprise about which separate financial information is available that is evaluated regularly
by the chief operating decision maker in deciding how to allocate resources and in assessing
performance. Based on the guidance in SFAS 131, the Company has one operating segment for financial
reporting purposes: Enterprise Infrastructure Software.
14.
Sales by geographic area are presented based upon the end customers designated delivery point.
Sales by geographic area were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
9,878
|
|
|
$
|
8,470
|
|
Europe, Middle East and Africa
|
|
|
4,385
|
|
|
|
4,603
|
|
Asia-Pacific Rim
|
|
|
2,178
|
|
|
|
2,509
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,441
|
|
|
$
|
15,582
|
|
|
|
|
|
|
|
|
Due in
part to industry consolidation in the telecommunications vertical
market that the Company serves,
sales to one customer represented approximately 24% of the Companys net revenue for the three
months ended March 31, 2008. No customer accounted for more than 10% of the Companys net revenue
for the three months ended March 31, 2007.
14. Contingencies
The Company is involved in various legal proceedings and disputes that arise in the normal course
of business. Disputes can be expensive and disruptive to normal business operations. The Company
believes that it has meritorious defenses to these matters. In 2003, the Company settled a lawsuit
which arose in connection with the termination of an employee by Netfish prior to the Companys
acquisition of Netfish. Since settlement of the underlying lawsuit, the Company has also reached
settlement with Netfishs insurers over payment of the legal fees incurred by the Company.
Netfishs former Chief Executive Officer asserts that the Company is obligated to reimburse him for
his legal expenses incurred in connection with this suit. The Company vigorously disputes such
assertion and is in discussions with the former Netfish Chief Executive Officer over the matter.
15. Guarantees
The Companys software license agreements generally include language indemnifying customers against
liabilities if its proprietary software products infringe a third partys intellectual property
rights. To date, the Company has not incurred any significant or material costs as a result of such
indemnifications and has not accrued any liabilities related to such obligations in its condensed
consolidated financial statements. The Companys software license agreements also generally include
a warranty that its proprietary software products will substantially operate as described in the
applicable program documentation for a period of 180 days after delivery. The Companys
subscription agreements relating to its open source support offerings generally include an open
source assurance, which provides the customer with a limited remedy in the event that the
Companys branded distribution of open source software products infringe a third partys
intellectual property rights. This remedy typically includes (i) obtaining the rights necessary
for the customer to continue to use the software, (ii) modifying the software so that it is
non-infringing or (iii) replacing the infringing portion of the code with non-infringing code. The
Company also generally warrants that services it performs will be provided in a professional and
workman-like manner. To date, the Company has not incurred any material costs associated with these
warranties.
In connection with certain facility leases, the Company has indemnified its lessors for claims
arising from the Companys use of the facility or the Companys breach of the lease. The Company
also indemnifies its directors and officers to the maximum extent permitted by law. The duration of
the indemnities varies, and in many cases is indefinite. The Company has not recorded any liability
for these indemnities in the accompanying condensed consolidated balance sheets.
15.
I
tem
2.
Managements Discussion and Analysis of Financial Condition and Results of
Operations
The following Managements Discussion and Analysis of Financial Condition and Results of Operations
of IONA Technologies PLC, hereinafter referred to as we, us, our, IONA, or the Company,
should be read in conjunction with the accompanying condensed consolidated financial statements for
the periods specified and associated notes. Managements Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the
Securities Exchange Act of 1934, as amended, or Exchange Act, made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 that relate to future events or
our future financial performance. In some cases, you can identify forward-looking statements by
terminology, such as may, will, should, could, expect, plan, anticipate, believe,
estimate, project, predict, intend, potential, or continue or the negative of such
terms or other comparable terminology, although not all forward-looking statements contain such
terms. In addition, these forward-looking statements include, but are not limited to, statements
regarding, among other things, our plans, objectives, expectations and intentions. These
forward-looking statements are neither promises nor guarantees but rather are subject to a number
of risks and uncertainties that could cause actual results to differ materially from those
described in the forward-looking statements, including risks and uncertainties relating to IONAs
cost management efforts; growth in market demand for service oriented architectures and integration
software; IONAs sales model; volume, timing and seasonal patterns of product sales; impact of
competitive products and pricing; development, launch and market acceptance of new and improved
products; undetected errors in software; the integration of any acquisitions; anticipated tax
rates; and general economic conditions, including their effect on the acquisition of new accounts
and the time required to close sales transactions. You should not rely on these forward-looking
statements, which are current only as of the date when made. You should not expect that these
forward-looking statements will be updated or supplemented as a result of changing circumstances or
otherwise, and we disavow and disclaim any obligation to do so. Further reference should be made to
our Annual Report on Form 10-K for the year ended December 31, 2007, as well as elsewhere in this
report.
Overview
We generate revenue from product licenses, as well as from our consulting, training and support
services. To date, we have derived most of our revenue from the licensing of our closed source
software products that currently comprise our Orbix and Artix product lines, and fees from related
services. We expect that as our Orbix products continue to mature, our Artix products and our FUSE
open source products will increasingly contribute to our revenue as they continue to gain market
acceptance.
We market our products and services through our direct marketing and sales organizations and
through indirect channels, including software vendors, system integrators, original equipment
manufacturers and, to a lesser extent, third-party distributors. Our total revenue is dependent on
the growth in demand for our software and services. In general, product revenue in the first
quarter of each year declines from the fourth quarter of the prior year in line with traditional
seasonal trends.
Our gross margins are affected by the mix of product and service revenue and the variety of
distribution channels utilized. We typically realize significantly higher gross margins on product
revenue than on service revenue. Management reviews and analyzes several key performance
indicators in order to manage our business and assess the quality of and potential variability of
our revenues and cash flows. These key performance indicators, which are discussed in more detail
below, include:
|
|
Revenue growth provides an important guide to our overall business growth and the
success of our sales and marketing efforts;
|
|
|
|
Gross margin is an indicator of our offering mix, competitive pricing pressures and the cost
of our operations;
|
|
|
|
Growth in our Artix product revenue is an indicator of the success of our focused sales
efforts;
|
|
|
|
Earnings per share is an indicator of our overall performance;
|
|
|
|
Liquidity and cash flow are indicators of our management of our balance sheet and expenses;
and
|
|
|
|
Growth in our FUSE open source services revenue is an indicator of market acceptance of our
introductory offerings.
|
16.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with United States
generally accepted accounting principles, or U.S. GAAP. These accounting principles require us to
make certain estimates, judgments and assumptions. We believe that the estimates, judgments and
assumptions upon which we rely are reasonable based upon information available to us at the time
that these estimates, judgments and assumptions are made. These estimates, judgments and
assumptions can affect the reported amounts of assets and liabilities as of the date of the
condensed consolidated financial statements, as well as the reported amounts of revenue and
expenses during the periods presented. To the extent there are material differences between these
estimates, judgments or assumptions and actual results, our financial statements will be affected.
The significant accounting policies that we believe are the most critical to aid in fully
understanding and evaluating our reported financial results include the following:
|
|
|
Revenue Recognition;
|
|
|
|
|
Allowances for Doubtful Accounts;
|
|
|
|
|
Share-Based Compensation;
|
|
|
|
|
Accounting for Income Taxes;
|
|
|
|
|
Goodwill and Intangible Assets;
|
|
|
|
|
Marketable Securities;
|
|
|
|
|
Restructuring; and
|
|
|
|
|
Foreign Currency.
|
In many cases, the accounting treatment of a particular transaction is specifically dictated by
U.S. GAAP and does not require managements judgment in its application. There are also areas in
which managements judgment in selecting among available alternatives would not produce a
materially different result. Our senior management has reviewed these critical accounting policies
and related disclosures with the Audit Committee of our Board of Directors. See
Notes to the
Consolidated Financial Statements
included in our Annual Report on Form 10-K for the year ended
December 31, 2007, which contain additional information regarding our accounting policies and other
disclosures required by U.S. GAAP.
Revenue Recognition
We recognize the majority of our revenue pursuant to software license and support agreements. While
the basis for software license revenue recognition is governed by the provisions of Statement of
Position 97-2,
Software Revenue Recognition
, as amended by SOP 98-4 and SOP 98-9, issued by the
Accounting Standards Executive Committee of the American Institute of Certified Public Accountants
and its related interpretations, or collectively, SOP 97-2, we exercise judgment and use estimates
in connection with the determination of the amount of software license and services revenue to be
recognized in each accounting period.
We do not enter into arrangements to deliver software requiring significant production,
modification or customization to our software products.
For our software license arrangements, we recognize revenue when:
|
|
we enter into a legally binding arrangement with a customer for the license of software;
|
|
|
|
delivery has occurred;
|
|
|
|
the license fee is fixed or determinable; and
|
|
|
|
collection is probable.
|
For arrangements with multiple elements, we allocate revenue to each element of a transaction based
upon its fair value as determined by vendor specific objective evidence, or VSOE, of fair value.
VSOE of fair value for each element of an arrangement is based upon the normal pricing and
discounting practices for each element when sold separately, including the renewal rate for support
services. We maintain management approved price lists for our product licenses, customer support
and professional services. We infrequently offer discounts on our customer
17.
support or professional services and, if offered, such discounts are usually insignificant. If we
cannot objectively determine the fair value of any undelivered element included in the multiple
element arrangement, we defer revenue until all elements are delivered, services have been
performed, or until fair value can be objectively determined. When the fair value of a delivered
element cannot be established, we use the residual method of accounting to record revenue, provided
the fair value of all undelivered elements is determinable. Under the residual method of
accounting, the fair value of the undelivered elements is deferred and recognized as they are
delivered and the remaining portion of the arrangement fee is allocated to the delivered elements
and is recognized as revenue.
We believe that our normal pricing and discounting practices provide a basis for establishing VSOE
of fair value for the undelivered elements based on the following facts:
|
|
Support contracts are regularly sold on a stand-alone basis to customers that choose to renew
the support contract beyond the initial term. Support contract pricing is based on established
list pricing. The renewal purchases at consistent pricing provide the basis for VSOE on the
support contracts. Support revenue is recognized ratably over the contract support term.
|
|
|
Consulting contracts are regularly sold on a stand-alone basis to customers requesting these
services. Consulting contract pricing is at a flat daily rate and customers purchase an
appropriate number of service days. The consulting services delivered on a stand-alone basis
at consistent pricing provide the basis for VSOE on the consulting contracts. Consulting
revenue is recognized as the services are performed.
|
We perform an annual analysis of all contracts to ensure that the actual allocation of fair value
to undelivered elements is not significantly different from the established VSOE rates for the
individual elements. The analysis is segmented by level of support and type of customer (i.e.,
end-user licensee or licensee with rights of distribution).
We assess whether fees are fixed or determinable at the time of sale and recognize revenue if all
other revenue recognition requirements are met. Our standard payment terms are typically net 30
days. Payment terms, however, may vary based on the country in which the agreement is executed.
Payments that extend beyond 30 days from the contract date, but that are due within twelve months,
are generally deemed to be fixed or determinable based on our successful collection history on such
arrangements, and thereby satisfy the required criteria for revenue recognition.
We assess whether collection is probable at the time of the transaction based on a number of
factors, including the customers past transaction history and credit-worthiness. If we determine
that the collection of the fee is not probable, we defer the fee and recognize revenue at the time
collection becomes probable, which is generally upon the receipt of cash.
We deliver products electronically or by overnight courier F.O.B origin, and our software
arrangements typically do not contain acceptance provisions. Accordingly, delivery is usually
satisfied when the customers have been provided with access codes to allow them to take immediate
possession of the software, or when shipped by courier, when the product leaves our premises.
Revenue from royalty arrangements in excess of guaranteed amounts is recognized upon notification
of such royalties becoming payable by the customer.
Allowances for Doubtful Accounts
We maintain allowances for doubtful accounts, as a reduction of accounts receivable, based on our
analyses of the likelihood that our customers will not pay all amounts due to us. In circumstances
where there is knowledge of a specific customers inability to meet its financial obligations, a
specific reserve is recorded against amounts due to reduce the net recognized receivable to the
amount that is reasonably believed to be collectable. For all our customers, we perform analyses
of the likelihood of payment, which includes a review of their credit profiles, the terms and
conditions of the contracts with our customers, current economic trends and payment history. We
reassess these allowances each accounting period. Historically, our actual losses and credits have
been consistent with these provisions. If actual payment experience with our customers is
different than our estimates, adjustments to these allowances may be necessary resulting in
additional charges to our condensed consolidated financial statements.
18.
Share-Based Compensation
We grant share options to purchase our common shares to our employees and directors under our share
option plans. We also grant phantom share units to certain key employees, which may have service,
market or performance-based conditions attached. Eligible employees may also purchase shares of our
ordinary shares at 85% of the lower of the fair market value on the first or the last day of the
offering period under our employee share purchase plan. The benefits provided under these plans are
share-based payments subject to the provisions of Statement of Financial Accounting Standards No.
123 (revised 2004),
Share-Based Payment,
or SFAS 123R. Effective January 1, 2006, we use the fair
value method to apply the provisions of SFAS 123R with a modified prospective application, which
provides for certain changes to the method for valuing share-based compensation. The valuation
provisions of SFAS 123R apply to new awards and to awards that are outstanding on the effective
date and are subsequently modified or cancelled. Under the modified prospective application, prior
periods are not revised for comparative purposes. Share-based compensation expense recognized under
SFAS 123R for the three months ended March 31, 2008 and 2007 was $0.6 million and $1.4 million,
respectively. At March 31, 2008, the total unamortized fair value of share options was $4.7
million. The weighted average period over which the unamortized fair value of share options will be
recognized is 1.3 years.
The fair value of each option is estimated on the date of grant using the Black-Scholes option
valuation model. The Black-Scholes option valuation model requires the input of highly subjective
assumptions, including the expected life of the share-based award and share price volatility. The
assumptions used in calculating the fair value of share-based compensation represent managements
best estimates, but these estimates involve inherent uncertainties and the application of
management judgment. As a result, if other assumptions had been used, our share-based compensation
expense could have been materially different. In addition, we are required to estimate the expected
option forfeiture rate and only recognize expense for those shares expected to vest. If our actual
option forfeiture rate is materially different from our estimate, the share-based compensation
expense could be materially different.
The expected term of options granted is derived from historical data on employee exercise and
post-vesting employment termination behavior. This methodology results in a weighted average
expected term calculation of 3.02 years. The risk-free rate for periods within the contractual life
of the option is based on the U.S. Treasury yield curve in effect at the time of grant. This
methodology results in a weighted average risk free rate of 2.1%. Expected volatility is based on
the historical volatility of the Companys shares. This methodology results in a volatility
calculation of 56.3%. We used the straight-line method for expense attribution.
Our weighted average estimated option forfeiture rate for the three months ended March 31, 2008,
based on our historical option forfeiture experience, is approximately 13%. We will record
additional expense if the actual option forfeitures are lower than estimated and will record a
recovery of prior expense if the actual option forfeitures are higher than estimated.
Accounting for Income Taxes
Significant judgment is required in determining our worldwide income tax expense provision. In the
ordinary course of a global business, there are many transactions and calculations where the
ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of income
sharing and cost reimbursement arrangements among related entities, the process of identifying
items of income and expense that qualify for preferential tax treatment, and segregation of foreign
and domestic income and expense to avoid double taxation.
Deferred tax assets and liabilities are determined using enacted tax rates for the effects of net
operating losses and temporary differences between the book and tax bases of assets and
liabilities. We record a valuation allowance to reduce our deferred tax assets by the amount of
tax benefits we estimate are not expected to be realized. Tax benefits will not be realized if we
do not generate sufficient taxable income in the future to apply against the deferred tax balance.
During the year ended December 31, 2007, based upon our U.S. operating results and an assessment of
our expected future U.S. results, we concluded that it was more likely than not that we would be
able to realize a portion of our U.S. deferred tax assets and net operating loss carryforwards
prior to their expiration. As a result, we reduced our deferred tax asset valuation allowance
related to U.S. deferred tax assets in 2007, resulting in recognition of a
19.
deferred tax asset of $2.0 million. This was partially offset by the recognition of $0.1 million
in deferred tax liabilities in Japan. We will continue to review our operating results to determine
if it becomes more likely than not that our deferred tax assets will be realized in the future, at
which time we would release some or all of the valuation allowance. The reduction in our valuation
allowance in 2007 resulted in an income tax benefit during that year. As a result, we have
recorded an increase in the provision for income taxes during the three months ended March 31,
2008. We may record additional deferred tax benefits in future periods if we expect to utilize
additional deferred tax assets. This analysis is largely based on our assessment of future income
which is closely connected to our budgeting process, which takes place in the fourth quarter of
each year.
In evaluating our ability to recover our deferred tax assets, we consider all available positive
and negative evidence including our past operating results, the existence of cumulative income in
the most recent fiscal years, changes in the business in which we operate and our forecast of
future taxable income. In determining future taxable income, we are responsible for assumptions
utilized, including the amount of state, federal and international pre-tax operating income, the
reversal of temporary differences and the implementation of feasible and prudent tax planning
strategies. These assumptions required significant judgment about the forecasts of future taxable
income and are consistent with the plans and estimates we are using to manage the underlying
businesses.
The majority of our unbenefited deferred tax assets relate to net operating loss carryforwards in
the U.S. and Ireland. The utilization and realization of these deferred tax assets is dependant
upon many complex factors, including the future jurisdictional mix of our earnings as adjusted for
the income sharing and cost reimbursement arrangements among the related entities. Historically,
the differences between book income and taxable income have varied in both amount and type but have
primarily been the result of timing differences and share-based compensation deductions. In
addition, we believe that we will realize our benefited deferred tax assets assuming continued
profitability in the applicable jurisdictions at existing levels.
We have significant operations and generate a substantial portion of our taxable income in Ireland.
In general, the tax rate in Ireland on trading income, which is 12.5%, is significantly lower than
U.S. tax rates. Moreover, our Irish taxable income derived from software substantially developed in
Ireland is taxed at a 10% effective tax rate. Therefore, our effective tax rate is generally
affected by the percentage of income that qualifies for this favorable tax treatment. Although we
anticipate that we will potentially benefit from this tax treatment, and that the extent of the
benefit could vary from period to period, the benefits of this lower tax rate have been limited as
a result of the historic Irish net operating losses and corresponding valuation allowance. Any
variation in the amount of our benefit from this tax treatment could have a material adverse effect
on our business, financial condition and results of operations.
In addition, we operate within several taxing jurisdictions and may be subject to audits in these
jurisdictions. These audits can involve complex issues that may require an extended period of time
for resolution. We believe that adequate provisions for income taxes have been made.
Goodwill and Intangible Assets
At March 31, 2008, we had approximately $9.9 million of goodwill and intangible assets related to
acquisitions, net of approximately $0.9 million of accumulated amortization. Goodwill and
intangible assets with indefinite lives are tested at least annually for impairment in accordance
with the provisions of Statement of Financial Accounting Standards No. 142,
Goodwill and Other
Intangible Assets
, or SFAS 142. The goodwill and other intangible asset impairment test is a
two-step process. The first step of the impairment analysis compares our fair value to our net book
value to determine if there is an indicator of impairment. In determining fair value, SFAS No. 142
allows for the use of several valuation methodologies, although it states quoted market prices are
the best evidence of fair value. Since we have one reporting unit, we calculate fair value using
the average market price of our American Depositary Receipts over a seven-day period surrounding
the annual impairment testing date (during the fourth fiscal quarter) and the number of our
ordinary shares outstanding on the date of the annual impairment test. Step two of the analysis
compares the implied fair value of goodwill and other intangible assets to its carrying amount in a
manner similar to a purchase price allocation for a business combination. If the carrying amount of
goodwill and other intangible assets exceeds its implied fair value, an impairment loss is
recognized equal to that excess. We test our goodwill and other intangible assets for impairment
annually during the fourth fiscal quarter and in interim periods if certain events occur indicating
that the carrying value of goodwill or other intangible assets may be
20.
impaired. Indicators such as unexpected adverse business conditions, economic factors,
unanticipated technological change or competitive activities, loss of key personnel, and acts by
governments and courts, may signal that an asset has become impaired. As of March 31, 2008, we
were not aware of any indicators or impairment that would impact the carrying value of our goodwill
and intangible assets.
Marketable Securities
Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and
Equity Securities, and SAB Topic 5M, Accounting for Noncurrent Marketable Equity Securities
,
provide guidance on determining when an investment is other-than-temporarily impaired. Investments
are reviewed quarterly for indicators of other-than-temporary impairment. This determination
requires significant judgment. In making this judgment, we employ a systematic methodology
quarterly that considers available quantitative and qualitative evidence in evaluating potential
impairment of our investments. If the cost of an investment exceeds its fair value, we evaluate,
among other factors, general market conditions, the duration and extent to which the fair value is
less than cost, and our intent and ability to hold the investment. We also consider specific
adverse conditions related to the financial health of and business outlook for the investee,
including industry and sector performance, changes in technology, operational and financing cash
flow factors, and rating agency actions. Once a decline in fair value is determined to be
other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is
established. If market, industry, and/or investee conditions deteriorate, we may incur future
impairments, which could have a material impact on our financial results.
At March 31, 2008, there was insufficient observable auction rate security, or ARS, market
information available to determine the fair value of our ARS investments. In accordance with the
provisions of Statement of Financial Accounting Standards No. 157,
Fair Value Measurements
, we
determined the fair value of our ARSs using level 3 inputs. Therefore, we estimated fair value by
incorporating assumptions that market participants would use in their estimate of fair value using
a discounted cash flows methodology. Some of these assumptions included credit quality, expected
length of time the ARS is expected to be held, expected cash flows during the holding period and a
risk adjusted discount rate. Based on this analysis, we recorded a temporary impairment of $0.8
million to other comprehensive loss related to our ARS investments as of March 31, 2008. If the
assumptions used in the fair value calculation were to change, we may incur additional unrealized
losses or realized losses which could have a material impact on our financial results.
Restructurings
We have recorded restructuring charges and credits to align our cost structure with changing market
conditions. Our restructuring plans resulted in a reduction in headcount and the closure and
consolidation of excess facilities. In determining the charges to record, we made certain
estimates and judgments surrounding the amounts ultimately to be paid for the actions we have
taken. At March 31, 2008, there were various accruals recorded for the costs associated with
certain excess facilities and lease obligations, which may be adjusted periodically for resolution
of certain contractual commitments, or changes in estimates of sublease income or the period of
time the facilities will be vacant and subleased. Although we do not anticipate additional
significant changes to our restructuring accruals for existing excess facilities, the actual costs
may differ from those recorded in the event that the subleasing assumptions require adjustment due
to changes in economic conditions surrounding the real estate market, actions of our subtenants or
if we terminate our lease obligations prior to the scheduled termination dates.
In order to estimate the costs related to our restructuring efforts, we estimated the most likely
expected outcomes of the significant actions to accomplish the restructuring. These estimates
principally related to charges for excess facilities and included estimates of future sublease
income, future net operating expenses of the facilities, brokerage commissions and other expenses.
The charge was calculated by taking into consideration: (1) the committed annual rental charge
associated with the vacant square footage; (2) an assessment of the sublease rents that could be
achieved based on current market conditions, vacancy rates and future outlook following
consultation with third party realtors; (3) an assessment of the period of time the facility would
remain vacant before being sublet; (4) an assessment of the percentage increases in the primary
lease rent at each review; and (5) the application of a discount rate of 4% over the remaining
period of the lease or termination clause.
21.
These estimates are reviewed at the end of each period and are revised if estimated future vacancy
and sublease rates vary from our original estimates. Historically, our estimates and assumptions
used to determine the liability for excess facilities have been consistent with actual results
experienced. Revisions to our estimates of this liability could materially impact our operating
results and financial position in future periods if anticipated events and assumptions, such as the
timing and amounts of sublease rental income, either change or do not materialize.
Foreign Currency
The U.S. dollar is our functional currency. A percentage of our revenue, expenses, assets and
liabilities are denominated in currencies other than our functional currency. Assets and
liabilities denominated in currencies other than the U.S. dollar are translated at period end
exchange rates. Revenue and expenses denominated in currencies other than the U.S. dollar are
translated at rates approximating those prevailing at the dates of the related transactions.
Resulting gains and losses are included in net loss for the period. Fluctuations in exchange rates
may have a material adverse effect on our results of operations, particularly our operating
margins, and could also result in exchange gains and losses. We cannot accurately predict the
impact of future exchange rate fluctuations on our condensed consolidated results of operations. We
have in the past sought to hedge the risks associated with fluctuations in exchange rates of the
euro to the U.S. dollar. However, because the majority of our sales are currently U.S. dollar-based
and because net Euro based assets and liabilities are closely matched, we no longer enter into
foreign currency forward exchange contracts to manage exposure related to transactions denominated
in foreign currencies. In the future, we may undertake transactions to hedge the risks associated
with fluctuations in exchange rates if the risk from foreign currency exposure increases as a
result of a decrease in the percentage of U.S. dollar-based transactions. We had no derivative or
hedging transactions the three months ended March 31, 2008 or in the year ended December 31, 2007.
22.
Results of Operations
The following table sets forth certain condensed consolidated statements of operations data as a
percentage of total revenue for the periods presented:
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|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2008
|
|
2007
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Product revenue
|
|
|
40.1
|
%
|
|
|
40.2
|
%
|
Service revenue
|
|
|
59.9
|
|
|
|
59.8
|
|
|
|
|
Total revenue
|
|
|
100.0
|
|
|
|
100.0
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
Cost of product revenue
|
|
|
1.1
|
|
|
|
1.2
|
|
Cost of service revenue
|
|
|
23.3
|
|
|
|
22.1
|
|
|
|
|
Total cost of revenue
|
|
|
24.4
|
|
|
|
23.3
|
|
|
|
|
Gross margin
|
|
|
75.6
|
|
|
|
76.7
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
29.9
|
|
|
|
28.4
|
|
Sales and marketing
|
|
|
43.9
|
|
|
|
50.4
|
|
General and administrative
|
|
|
24.4
|
|
|
|
20.1
|
|
Amortization of intangible assets
|
|
|
0.3
|
|
|
|
0.3
|
|
Restructuring
|
|
|
9.3
|
|
|
|
0.0
|
|
|
|
|
Total operating expenses
|
|
|
107.8
|
|
|
|
99.2
|
|
|
|
|
Loss from operations
|
|
|
(32.2
|
)
|
|
|
(22.5
|
)
|
Interest income, net
|
|
|
3.0
|
|
|
|
3.7
|
|
Net exchange gain
|
|
|
0.4
|
|
|
|
0.0
|
|
|
|
|
Loss before provision / (benefit) for income taxes
|
|
|
(28.8
|
)
|
|
|
(18.8
|
)
|
Provision / (benefit) for income taxes
|
|
|
2.4
|
|
|
|
(0.5
|
)
|
|
|
|
Net loss
|
|
|
(31.2
|
)%
|
|
|
(18.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin:
|
|
|
|
|
|
|
|
|
Product
|
|
|
97.2
|
%
|
|
|
96.3
|
%
|
Service
|
|
|
61.0
|
%
|
|
|
62.9
|
%
|
Three months ended March 31, 2008, compared to three months ended March 31, 2007
Total Revenue
Revenue by geographic area is presented based upon the end customers designated delivery point.
Revenue by geographic area is as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
($ in millions)
|
|
2008
|
|
|
%
of
Total
|
|
|
2007
|
|
|
%
of
Total
|
|
|
% Change
|
|
Americas
|
|
$
|
9.9
|
|
|
|
60.1
|
%
|
|
$
|
8.5
|
|
|
|
54.4
|
%
|
|
|
16.6
|
%
|
Europe, Middle East and Africa
|
|
|
4.4
|
|
|
|
26.7
|
%
|
|
|
4.6
|
|
|
|
29.5
|
%
|
|
|
(4.7
|
)%
|
Asia-Pacific Rim
|
|
|
2.1
|
|
|
|
13.2
|
%
|
|
|
2.5
|
|
|
|
16.1
|
%
|
|
|
(13.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
16.4
|
|
|
|
|
|
|
$
|
15.6
|
|
|
|
|
|
|
|
5.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.
Total revenue increased by 5.5% to $16.4 million for the three months ended March 31, 2008, from
$15.6 million for the three months ended March 31, 2007. Total revenue from customers located
outside of the United States represented 39.9% of total revenue for the three months ended March
31, 2008, and 45.6% of total revenue for the three months ended March 31, 2007, or $6.6 million and
$7.1 million, respectively. The total number of transactions over $250,000 was 13 for the three
months ended March 31, 2008, compared to nine during the same period of 2007. There was a decrease
in average transaction size to $66,000 for the three months ended March 31, 2008, from
approximately $67,000 for the three months ended March 31, 2007. Due in part to industry
consolidation in the telecommunications vertical market we serve, sales to one customer represented
approximately 24% of our net revenue for the three months ended March 31, 2008. No customer
accounted for more than 10% of our net revenue for the three months ended March 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
($ in millions)
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
Product revenue
|
|
$
|
6.6
|
|
|
$
|
6.3
|
|
|
|
5.2
|
%
|
Service revenue
|
|
|
9.8
|
|
|
|
9.3
|
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
16.4
|
|
|
$
|
15.6
|
|
|
|
5.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
The increase in product revenue was attributable to increased demand for our Artix family of
products partially offset by a decline in demand for our Orbix family of products. The increase in
service revenue is primarily attributable to an increase in demand for our Artix family of products
partially offset by a decrease in maintenance for our Orbix family of products. We expect the
dollar amount of revenue for our Orbix product family to continue to decline, as the product family
continues to age, and be offset by an increase in revenue for our Artix product family.
Maintenance revenue increased $0.8 million to $8.6 million during the three months ended March 31,
2008 from $7.8 million during the same period of 2007. The increase in maintenance revenue is
primarily related to an increase in Artix support contracts. Consulting and training revenue
decreased $0.3 million to $1.2 million for the three months ended March 31, 2008 from $1.5 million
during the same period in the prior year.
Cost of Product Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
($ in millions)
|
|
2008
|
|
2007
|
|
% Change
|
Cost of product revenue
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
|
|
(18.7
|
)%
|
Gross margin
|
|
|
97.2
|
%
|
|
|
96.3
|
%
|
|
|
|
|
Cost of product revenue consists primarily of amortization of purchased technology, third party
royalties, cost of product media and duplication, manuals, packaging materials and shipping and
handling and, to a lesser extent, the salaries and benefits of certain personnel and related
operating costs of computer equipment. The improvement in product gross margin year-over-year is
primarily attributable to a decrease in third party royalties partially offset by an increase in
amortization of purchased technology in the current year. In connections with the acquisition of
another company, we recorded $2.4 million of developed technology in the first quarter of 2007
which is being amortized on a straight-line basis to cost of product revenue over a four year
period.
Cost of Service Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
($ in millions)
|
|
2008
|
|
2007
|
|
% Change
|
Cost of service revenue
|
|
$
|
3.8
|
|
|
$
|
3.5
|
|
|
|
11.1
|
%
|
Gross margin
|
|
|
61.0
|
%
|
|
|
62.9
|
%
|
|
|
|
|
Cost of service revenue consists primarily of personnel costs for consultancy, training, customer
support, product configuration and implementation, and related operating costs of computer
equipment and travel expenses. The
24.
decrease in service gross margin was primarily attributable to increased personnel expenses. The
average number of service personnel increased to 61 for the three months ended March 31, 2008 from
56 for the same period in the prior year. We expect that the cost of service revenue will increase
for the remainder of 2008 as a result of our continued efforts to grow our consulting and training
business.
Research and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
($ in millions)
|
|
2008
|
|
2007
|
|
% Change
|
Research and development
|
|
$
|
4.9
|
|
|
$
|
4.4
|
|
|
|
11.2
|
%
|
Percentage of revenue
|
|
|
29.9
|
%
|
|
|
28.4
|
%
|
|
|
|
|
Research and development expenses consist primarily of salaries and benefits of research and
development personnel, costs of third-party contractors, personnel-related overhead allocation,
depreciation expenses arising from the acquisition of computer equipment, software license fees and
related indirect costs. The increase in research and development expense is primarily related to
investments in our open source initiative, partially offset by a decrease in our share-based
compensation expense. The average number of research and development personnel decreased to 130
for the three months ended March 31, 2008 from 135 for the three months ended March 31, 2007
primarily as a result of restructuring actions executed in the first quarter of 2008. We expect
that research and development expenses will remain at similar aggregate dollar amounts for the
remainder of 2008.
Sales and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
($ in millions)
|
|
2008
|
|
2007
|
|
% Change
|
Sales and marketing
|
|
$
|
7.2
|
|
|
$
|
7.9
|
|
|
|
(8.2
|
)%
|
Percentage of revenue
|
|
|
43.9
|
%
|
|
|
50.4
|
%
|
|
|
|
|
Sales and marketing expenses consist primarily of salaries, sales commissions and benefits of sales
and marketing personnel, personnel-related overhead allocation, travel, entertainment, advertising
and promotional expenses, and related indirect costs. The decrease in sales and marketing expenses
was primarily related to a decrease in share-based compensation and personnel costs. The average
number of sales and marketing personnel decreased to 94 for the three months ended March 31, 2008
from 110 for the three months ended March 31, 2007 as a result of restructuring actions executed in
the first quarter of 2008. We expect that sales and marketing expenses will increase for the
remainder of 2008 reflecting volume related spending.
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
($ in millions)
|
|
2008
|
|
2007
|
|
% Change
|
General and administrative
|
|
$
|
4.0
|
|
|
$
|
3.1
|
|
|
|
28.2
|
%
|
Percentage of revenue
|
|
|
24.4
|
%
|
|
|
20.1
|
%
|
|
|
|
|
General and administrative expenses consist primarily of salaries and benefits of financial,
administrative and management personnel, general office administration expenses (rent and
occupancy, telephone and other office supply costs), and related indirect costs. General and
administrative expenses also include professional fees, liability insurance and depreciation. The
increases in general and administrative expenses was primarily attributable to increased audit and
compliance fees. Two factors that contributed to these increases were: (1) our transition from a
foreign private issuer to full U.S. reporting status resulting in an increase in audit and legal
fees and (2) in February 2008 we retained a financial advisor to evaluate and advise our Board of
Directors regarding strategic alternatives for the business, including, but not limited to, the
sale of the Company or merger of the Company with another entity offering strategic opportunities.
These actions resulted in an increase in professional fees of $0.5 million for the three months
ended March 31, 2008, compared to the same period in the prior year. These increases were
25.
partially offset by a decrease in share-based compensation expense. We expect that general and
administrative expenses will remain at similar aggregate dollar amounts for the remainder of 2008
primarily as result of continued professional fees.
Amortization of Intangible Assets
In 2007, we recorded $3.3 million of intangible assets related to our acquisitions of C24 and
LogicBlaze consisting of technology, customer relationships and covenants not to compete.
Intangible assets of approximately $2.4 million related to technology are amortized to cost of
product revenue and represented amortization expense of $0.1 million in 2008 and less than $0.1
million in 2007, whereas approximately $0.9 million of intangible assets related to customer
relationships and covenant not to compete are amortized to operating expenses. These assets are
principally being amortized on a straight-line basis over a three to five year period. Amortization
expense of $0.1 million in 2008 and less than $0.1 million in 2007 represents amortization of
customer relationships and covenants not to compete.
Restructurings
On January 11, 2008, we committed to a cost reduction plan focused on streamlining our operations
and the elimination of certain fixed costs. This includes costs associated with a workforce
reduction and other direct costs. We incurred a total of $1.5 million for severance payments and
related costs in connection with workforce reduction actions during the three months ended March
31, 2008. We expect to incur the remaining workforce reduction and other direct costs under this
restructuring plan during the second quarter of 2008. We are currently exploring our options to
mitigate our affected real estate lease obligations. At this time, we are unable to estimate the
amount or range of costs associated with the consolidation of certain facilities and other
associated costs.
Interest Income, Net
Interest income, net of fees, primarily represents interest earned on cash and investment balances.
Interest income, net was $0.5 million for the three months ended March 31, 2008, compared to $0.6
million for the three months ended March 31, 2007. The decrease in net interest income was
primarily due to a decrease in interest rates for the three months ended March 31, 2008, compared
to the three months ended March 31, 2007.
Net Exchange Gain
Net exchange gain was $0.1 million for the three months ended March 31, 2008 and thirteen thousand
for the three months ended March 31, 2007. The increase in net exchange gain was primarily
attributable to gains from the strength of the Japanese Yen against the U.S. dollar partially
offset by losses incurred due to the strength of the Euro against the U.S. dollar for the three
months ended March 31, 2008, compared to the three months ended March 31, 2007.
Provision / (Benefit) for Income Taxes
Provision for income taxes was $0.4 million for the three months ended March 31, 2008 compared to a
$0.1 million benefit for income taxes for the three months ended March 31, 2007. During the three
months ended March 31, 2008, we recorded a decrease to our liability for unrecognized tax benefits
of approximately $0.1 million as a result of the lapse of the statute of limitations in a certain
tax jurisdiction. This decrease resulted in a $0.1 million effective tax rate benefit for the
quarter. During the three months ended March 31, 2007, based upon our U.S. operating results and
an assessment of our expected future results, we concluded that it was, more likely than not, that
we would be able to realize a portion of our U.S. net operating loss carryforward tax assets prior
to their expiration. As a result, we reduced our valuation allowance resulting in recognition of a
deferred tax asset of $0.4 million. The residual provision for income taxes of $0.5 million in 2008
and the provision for income taxes of $0.3 million in 2007 reflects the tax in connection with the
proportion of income in jurisdictions outside of the Republic of Ireland.
26.
Liquidity and Capital Resources
Our capital requirements relate primarily to facilities, employee infrastructure and working
capital requirements. Historically, we have funded our cash requirements primarily through the
public and private sales of equity securities, operating leases, and from operations. At March 31,
2008, we had cash and cash equivalents, restricted cash, and investments of $55.3 million,
representing a decrease of $1.1 million from March 31, 2007 and $1.2 million from December 31,
2007. At December 31, 2007, we had cash and cash equivalents, restricted cash, and marketable
securities of $56.5 million.
The following table shows the major components of our condensed consolidated statements of cash
flows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(U.S. dollars, in thousands)
|
|
Cash and cash equivalents, beginning of period
|
|
$
|
21,767
|
|
|
$
|
37,569
|
|
Net cash (used in) provided by operating activities
|
|
|
(782
|
)
|
|
|
8,737
|
|
Net cash provided by (used in) investing activities
|
|
|
7,656
|
|
|
|
(8,160
|
)
|
Net cash provided by financing activities
|
|
|
713
|
|
|
|
919
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
29,354
|
|
|
$
|
39,065
|
|
|
|
|
|
|
|
|
Net cash used in operating activities was $0.8 million for the three months ended March 31, 2008,
compared to net cash provided by operating activities of $8.7 million for the three months ended
March 31, 2007. The decrease in cash provided by operating activities primarily reflects lower
collections on our accounts receivables as well as increased expenses in the current year.
As of March 31, 2008, we had approximately $0.2 million of irrevocable letters of credit
outstanding in connection with facility leases, which renew annually for the duration of the lease
terms and which expire in July 2011. The investments pledged for security of the letters of credit
are presented as restricted cash in our condensed consolidated balance sheets.
To the extent that non-cash items increase or decrease our future operating results, there will be
no corresponding impact on our cash flows. After excluding the effects of these non-cash charges,
the primary changes in cash flows relating to operating activities will result from changes in
working capital. Our primary source of operating cash flows is the collection of accounts
receivable from our customers. Our operating cash flows are also impacted by the timing of payments
to our vendors for accounts payable. We generally pay our vendors and service providers in
accordance with the invoice terms and conditions. The timing of cash payments in future periods
will be impacted by the terms of accounts payable arrangements and managements assessment of our
cash inflows.
Net cash provided by investing activities was $7.7 million for the three months ended March 31,
2008, compared to net cash used in investing activities of $8.2 million for the three months ended
March 31, 2007. This increase primarily relates to our $7.3 million cash acquisition of C24, a
software development firm specializing in data management and transformation technology, which we
purchased in March 2007. Additionally, a balance shift within investment classifications from
short-term (91 days to a year) to cash equivalents (90 days or less) contributed to the increase in
net investing activity cash flows for the three months ended March 31, 2008, compared to the three
months ended March 31, 2007.
At March 31, 2008, we held $18.0 million (par value) of investments comprised of ARSs, which are
variable-rate debt securities that are backed by student loans and that have long-term maturities
with interest rates that are set and reset through Dutch auction process that is typically held
every 7, 28 or 35 days. The ARSs have historically traded at par value and are callable at par
value at the option of the issuer. Interest is typically paid at the end of each auction period. At
March 31, 2008, all of the ARSs we held were AAA/Aaa rated, collateralized by student loans
guaranteed by the U.S. government under the Federal Family Education Loan Program. Until February
2008, the auction rate securities market was highly liquid. Beginning in the week of February 11,
2008, a substantial number of auctions failed, meaning that there was insufficient demand to sell
all of the securities that holders desired to
27.
sell at auction. The immediate effect of a failed auction is that the holders of such securities
cannot sell the securities at auction and the interest rate on the security generally resets to a
maximum auction rate. In the case of a failed auction, with respect to the ARSs we held, the ARS,
are not currently deemed liquid. In the case of funds we invested in ARSs which are the subject of
a failed auction, we may not be able to access the funds without a loss of principal, unless a
future auction on these investments is successful or the issuer calls the security pursuant to a
mandatory tender or redemption prior to maturity. Due to these recent changes and uncertainty in
the ARS market, we believe the recovery period for these investments is likely to be longer than 12
months and as a result, have classified these investments as long-term as of March 31, 2008.
At March 31, 2008, there was insufficient observable ARS market information available to determine
the fair value of our investments. Therefore, we estimated fair value by incorporating assumptions
that market participants would use in their estimates of fair value using a discounted cash flows
methodology. Some of these assumptions included credit quality, expected length of time the ARS is
expected to be held, expected cash flows during the holding period and a risk adjusted discount
rate. One of the more significant assumptions made in our valuation model was the term of expected
cash flows of the underlying student loans. We developed several assumptions of the underlying loan
payoffs that ranged from four to ten years. Using the projections produced from these ranges, the
resulting values of the ARSs ranged from $17.3 million to $16.5 million. Based on our internal
modeling and the value provided by the broker, we concluded that the fair value of the ARSs was
$17.2 million as of March 31, 2008 and recorded an unrealized loss on these securities of $0.8
million in other comprehensive income, reflecting the decline in the estimated fair value of these
securities. We believe this unrealized loss is primarily attributable to the limited liquidity of
these investments and the length of time we may have to hold the ARSs to realize par value.
Net cash provided by financing activities was $0.7 million for the three months ended March 31,
2008, compared to $0.9 million for the three months ended March 31, 2007. For both the three
months ended March 31, 2008 and 2007, net cash provided by financing activities resulted primarily
from the proceeds from the exercise of share options and the sale of shares under our 1999 Employee
Share Purchase Plan.
We lease office space under non-cancelable operating leases with various expiration dates through
2013. Future minimum lease payments under all operating leases as of March 31, 2008 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment due by period (U.S. dollars in thousands)
|
|
|
|
|
|
|
Less than
|
|
1-3
|
|
3-5
|
|
More than
|
Contractual Obligations
|
|
Total
|
|
1 year
|
|
years
|
|
years
|
|
5 years
|
Operating Lease Obligations
|
|
$
|
23,690
|
|
|
$
|
5,834
|
|
|
$
|
9,244
|
|
|
$
|
7,437
|
|
|
$
|
1,175
|
|
The lease commitments shown include amounts related to certain exited facilities that have been
reserved for as a result of our restructuring plans, which, net of estimated sublease income,
resulted in a restructuring balance of approximately $2.4 million at March 31, 2008.
We anticipate our operating costs will remain relatively stable for the foreseeable future and, as
a result, we intend to fund our operating expenses through cash flows from operations. We expect to
use our cash resources to fund capital expenditures as well as acquisitions or investments in
complementary businesses, technologies or product lines. We believe that our current cash, cash
equivalents, and marketable securities and cash flows from operations will be sufficient to meet
our anticipated cash requirements for working capital and capital expenditures for at least the
next twelve months.
It is possible that, when needed, adequate funding may not be available to us or, if available, may
not be available on terms favorable to us. In addition, we may decide to issue additional equity or
debt securities for such funding, which could dilute the ownership of existing shareholders. Any
shortfall in our capital resources could result in our limiting the introduction or marketing of
new products and services, which could have a material adverse effect on our business, financial
condition and results of operations.
Exposure to Currency Fluctuations
Our condensed consolidated financial statements are prepared in U.S. dollars, our functional
currency. A percentage of our revenue, expenses, assets and liabilities are denominated in
currencies other than our functional currency.
28.
Fluctuations in exchange rates may have a material adverse effect on our results of operations,
particularly our operating margins, and could also result in exchange gains and losses. As a result
of currency fluctuations, we recognized an exchange gain of less than $0.1 million for both the
three months ended March 31, 2008 and 2007. We cannot accurately predict the impact of future
exchange rate fluctuations on our results of operations. We have in the past sought to hedge the
risks associated with fluctuations in exchange rates of the euro to the U.S. dollar. However,
because the majority of our sales and expenses are currently made in U.S. dollars, we no longer
enter into foreign currency forward exchange contracts to manage exposure related to transactions
denominated in foreign currencies. In the future, we may undertake transactions to hedge the risks
associated with fluctuations in exchange rates if the risk from foreign currency exposure increases
due to a decrease in the percentage of U.S. dollar-based transactions. See also Item 3
Quantitative and Qualitative Disclosures About Market Risk
. We had no derivative or hedging
transactions in the three months ended March 31, 2008.
Item
3.
Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes, other than those set forth below, in market risk exposures
from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2007.
At March 31, 2008, we held $18.0 million (par value) of investments comprised of auction rate
securities, or ARSs, which are variable-rate debt securities backed by student loans. These ARSs
are intended to provide liquidity through an auction process that resets the applicable interest
rate at predetermined calendar intervals, allowing investors to either roll over their holdings or
gain immediate liquidity by selling such interests at par. The recent uncertainties in the credit
markets have affected all of our holdings in ARSs and auctions for our investments in these
securities have failed to settle on their respective settlement dates. Consequently, the
investments are not currently liquid and we will not be able to access these funds until a future
auction of these investments is successful or a buyer is found outside of the auction process.
Maturity dates for these ARSs range from 2027 to 2047. As of March 31, 2008, we reclassified our
entire balance of ARSs from current marketable securities to non-current marketable securities on
our condensed consolidated balance sheet because of uncertainty in the ARS market. Additionally, as
of March 31, 2008, we determined that there was a $0.8 million temporary decline in the fair value
of our ARSs which was recorded to accumulated other comprehensive loss in the stockholders equity
section of our condensed consolidated balance sheet.
The valuation of our investment portfolio is subject to uncertainties that are difficult to
predict. Factors that may impact its valuation include changes to credit ratings of the securities
as well as to the underlying assets supporting those securities, rates of default of the underlying
assets, underlying collateral value, discount rates and ongoing strength and quality of market
credit and liquidity.
We have no reason to believe that any of the underlying issuers of our ARSs are presently at
imminent risk of default. However, if the issuer is unable to successfully close future auctions
and their credit worthiness deteriorates, we may be required to adjust the carrying value of the
ARSs through an impairment charge. Through May 9, 2008, we have continued to receive interest
payments on the ARSs in accordance with their terms. We believe we will ultimately be able to
liquidate our investments without significant loss of principal primarily due to the collateral
securing the ARSs. However, it could take until final maturity of the ARSs to realize our
investments par value.
If the current market conditions deteriorate further, or the anticipated recovery in market values
does not occur, we may be required to record additional unrealized losses in other comprehensive
loss or impairment charges in future quarters, which could have a material impact on our financial
results.
Item 4. Controls and Procedures
(a) Disclosure Controls and Procedures.
Our Chief Executive Officer, Peter M. Zotto, and our Chief Financial Officer, Christopher M.
Mirabile, (our principal executive officer and principal financial officer, respectively) have
evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) pursuant to Rule 13a-15(b). Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure controls and
procedures were effective as of March 31, 2008, to ensure that information required to
29.
be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SECs rules and forms,
and our controls and procedures ensure that information required to be disclosed by IONA in such
reports is accumulated and communicated to our management, including our Chief Executive Officer
and Chief Financial Officer, or persons performing similar functions, as appropriate, to allow
timely decisions regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, our management recognized that any controls and procedures, no matter how
well designed and operated, can provide only reasonable assurances of achieving the desired control
objectives, and management necessarily was required to apply its judgment in designing and
evaluating the controls and procedures. On an on-going basis, we review and document our
disclosure controls and procedures, including our internal control over financial reporting, and
may from time to time make changes aimed at enhancing their effectiveness and to ensure that our
systems evolve with our business.
(b) Changes in Internal Controls Over Financial Reporting.
There was no change in our internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) that occurred during the quarter ended March 31, 2008 that has
materially affected, or is reasonably likely to materially affect, the Companys internal control
over financial reporting.
Part II. OTHER INFORMATION
Item
1. LEGAL PROCEEDINGS
The information set forth in Note 14 to the Notes to the Condensed Consolidated Financial
Statements is incorporated by reference herein.
Item
1A. RISK FACTORS
We operate in a rapidly changing environment that involves a number of risks, some of which are
beyond our control. In addition to the other information set forth in this report, you should
carefully consider the factors discussed in Item 1A. Risk Factors in our Annual Report on Form
10-K for the year ended December 31, 2007, which could materially affect our business, financial
condition or future results. These are not the only risks we face. Additional risks and
uncertainties not currently known to us or that we currently deem to be immaterial also may
materially adversely affect our business, financial condition or operating results.
In addition to the risks described in our Annual Report on Form 10-K for the year ended December
31, 2007, an unsolicited preliminary expression of interest in the acquisition of IONA and the
public nature of the resulting review of strategic alternatives by the Board of Directors has
created a distraction for our management and uncertainty that may adversely affect our business.
In response to regulatory requirements following an unsolicited expression of interest in the
acquisition of the Company, on February 20, 2008 we announced that our Board of Directors had
retained a financial advisor to evaluate and advise the Company regarding strategic alternatives
for our business, including, but not limited to, the sale of the Company or merger of the Company
with another entity offering strategic opportunities. There is no assurance that this process of
exploring strategic alternatives will result in a transaction. The review and consideration of
strategic alternatives for the Companys business have been, and may continue to be, a significant
distraction for our management and employees, and have required, and may continue to require, the
expenditure of significant time and resources by us. The public nature of this evaluation process
has also created uncertainty for our employees and which may adversely affect our ability to retain
key employees and to hire new talent. Additionally, the public nature of this evaluation process
may also create uncertainty for current and potential customers and business partners, who consider
our strategic direction when deciding whether to engage in transactions with us, which could cause
them to terminate, or not to renew or enter into, transactions with us.
30.
Item 6. Exhibits
The exhibits listed below are filed or incorporated by reference in this Quarterly Report on Form
10-Q.
|
|
|
Exhibit No.
|
|
Description of Exhibit
|
|
|
|
10.1
|
|
Form of Incentive Share Option Agreement (1)
|
|
|
|
10.2
|
|
Form of Non-Qualified Option Agreement (1)
|
|
|
|
10.3
|
|
Form of Phantom Share Unit Agreement (2)
|
|
|
|
10.4
|
|
First Amendment to Non-Executive Directors Change in Control Plan, dated
November 29, 2007 (2)
|
|
|
|
10.5
|
|
Form of First Amendment to Change of Control Agreement by and among IONA
Technologies, Inc., IONA Technologies PLC and each of the executive
officers of IONA Technologies PLC (2)
|
|
|
|
10.6
|
|
Senior Management Team Bonus Plan (3)
|
|
|
|
31.1*
|
|
Certification of Principal Executive Officer required by Rule 13a-14(a)
or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
31.2*
|
|
Certification of Principal Financial Officer required by Rule 13a-14(a)
or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32.1**
|
|
Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
This exhibit is a management contract or compensatory plan or arrangement.
|
|
*
|
|
Filed herewith.
|
|
**
|
|
Furnished herewith.
|
|
(1)
|
|
Incorporated by reference to the Companys Current Report on Form 8-K filed on February 26,
2008.
|
|
(2)
|
|
Incorporated by Incorporated by reference to the Companys Annual Report on Form 10-K for the
year ended December 31, 2007 (File No. 0-29154).
|
|
(3)
|
|
Incorporated by reference to the Companys Current Report on Form 8-K filed on February 21,
2008.
|
31.
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 thereunto duly authorized.
|
|
|
|
|
|
IONA Technologies PLC
|
|
Date: May 12, 2008
|
|
|
By:
|
/s/ Peter M. Zotto
|
|
|
|
Peter M. Zotto, Chief Executive Officer
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
By:
|
/s/ Christopher M. Mirabile
|
|
|
|
Christopher M. Mirabile,
Chief Financial Officer
|
|
|
|
(Principal Financial Officer)
|
|
|
32.
Iona Technologies Adr (MM) (NASDAQ:IONA)
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De May 2024 a Jun 2024
Iona Technologies Adr (MM) (NASDAQ:IONA)
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