-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
K11nC/I3L2SgroE528x8Z1bMfF/q99ZqjRwz7zcSaH0+LG69rUWHwX13qq6tZyvh
ntloZd5mnU1wP9VvBxi8iw==
0001136261-07-000175.txt : 20071107
0001136261-07-000175.hdr.sgml : 20071107
20071106200737
ACCESSION NUMBER: 0001136261-07-000175
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 13
CONFORMED PERIOD OF REPORT: 20070930
FILED AS OF DATE: 20071107
DATE AS OF CHANGE: 20071106
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: TEKELEC
CENTRAL INDEX KEY: 0000790705
STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663]
IRS NUMBER: 952746131
STATE OF INCORPORATION: CA
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-15135
FILM NUMBER: 071219435
BUSINESS ADDRESS:
STREET 1: 5200 PARAMOUNT PARKWAY
CITY: MORRISVILLE
STATE: NC
ZIP: 27560
BUSINESS PHONE: 919-460-5500
MAIL ADDRESS:
STREET 1: 5200 PARAMOUNT PARKWAY
CITY: MORRISVILLE
STATE: NC
ZIP: 27560
10-Q
1
form10q.htm
10-Q
Q3 2007 DOC
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-15135
(Exact name of registrant as specified in its charter)
California
|
95-2746131
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification Number)
|
5200 Paramount Parkway
Morrisville, North Carolina 27560
(Address and zip code of principal executive offices)
(919) 460-5500
(Registrant's 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 reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES x
NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer x
Accelerated filer ¨
Non-accelerated filer ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ¨
NO x
As of November 1, 2007 there were 68,810,553 shares of the registrant's common stock, without par value, outstanding.
Note: PDF provided as a courtesy
TEKELEC
TABLE OF CONTENTS
FORM 10-Q
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
TEKELEC
Unaudited Condensed Consolidated Balance Sheets
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2007
|
|
|
2006
|
ASSETS |
|
|
(Thousands, except share data) |
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
52,428 |
|
$ |
45,329 |
Short-term investments, at fair value |
|
|
378,585
|
|
|
379,045
|
Total cash, cash equivalents and short-term investments |
|
|
431,013 |
|
|
424,374 |
Accounts receivable, net |
|
|
109,826 |
|
|
133,050 |
Inventories |
|
|
22,000 |
|
|
25,739 |
Income tax receivable |
|
|
25,402 |
|
|
14,665 |
Deferred income taxes |
|
|
20,632 |
|
|
27,671 |
Deferred costs and prepaid commissions |
|
|
49,691 |
|
|
55,110 |
Prepaid expenses and other current assets |
|
|
11,801 |
|
|
26,133 |
Receivable from Genband |
|
|
408 |
|
|
- |
Assets of discontinued operations |
|
|
-
|
|
|
118,341
|
Total current assets |
|
|
670,773 |
|
|
825,083 |
Property and equipment, net |
|
|
32,674 |
|
|
36,398 |
Investments in privately-held companies |
|
|
18,553 |
|
|
7,322 |
Deferred income taxes, net |
|
|
81,819 |
|
|
51,496 |
Other assets |
|
|
1,275 |
|
|
2,539 |
Goodwill |
|
|
26,876 |
|
|
26,876 |
Intangible assets, net |
|
|
17,644
|
|
|
19,543
|
Total assets |
|
$ |
849,614
|
|
$ |
969,257
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Trade accounts payable |
|
$ |
19,814 |
|
$ |
27,316 |
Accrued expenses |
|
|
44,109 |
|
|
55,665 |
Accrued payroll and related expenses |
|
|
20,317 |
|
|
28,733 |
Current portion of deferred revenues |
|
|
142,262 |
|
|
189,994 |
Convertible debt |
|
|
125,000 |
|
|
- |
Liabilities associated with SSG |
|
|
6,852 |
|
|
- |
Liabilities of discontinued operations |
|
|
-
|
|
|
40,991
|
Total current liabilities |
|
|
358,354 |
|
|
342,699 |
Deferred income taxes |
|
|
1,331 |
|
|
1,481 |
Long-term portion of deferred revenues |
|
|
10,850 |
|
|
5,836 |
Long-term convertible debt |
|
|
- |
|
|
125,000 |
Other long-term liabilities |
|
|
6,046
|
|
|
-
|
Total liabilities |
|
|
376,581
|
|
|
475,016
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity: |
|
|
|
|
|
|
Common stock, without par value, 200,000,000 shares authorized; |
|
|
|
|
|
|
69,822,574 and 68,728,986 shares issued and outstanding, respectively |
|
|
345,570 |
|
|
322,620 |
Retained earnings |
|
|
125,979 |
|
|
171,722 |
Accumulated other comprehensive income (loss) |
|
|
1,484
|
|
|
(101)
|
Total shareholders' equity |
|
|
473,033
|
|
|
494,241
|
Total liabilities and shareholders' equity |
|
$ |
849,614
|
|
$ |
969,257
|
See notes to unaudited condensed consolidated financial statements.
2
TEKELEC
Unaudited Condensed Consolidated Statements of Operations
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Thousands, except per share data) |
Revenues |
|
$ |
97,797 |
|
$ |
134,297 |
|
$ |
316,574 |
|
$ |
318,247 |
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
33,367 |
|
|
49,274 |
|
|
132,043 |
|
|
119,296 |
Amortization of purchased technology |
|
|
587
|
|
|
586
|
|
|
1,766
|
|
|
1,760
|
Total cost of sales |
|
|
33,954
|
|
|
49,860
|
|
|
133,809
|
|
|
121,056
|
Gross profit |
|
|
63,843
|
|
|
84,437
|
|
|
182,765
|
|
|
197,191
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
22,762 |
|
|
20,838 |
|
|
69,033 |
|
|
57,940 |
Sales and marketing |
|
|
16,662 |
|
|
18,706 |
|
|
53,636 |
|
|
55,643 |
General and administrative |
|
|
12,354 |
|
|
16,180 |
|
|
40,148 |
|
|
46,299 |
Restructuring and other |
|
|
2,291 |
|
|
(12) |
|
|
4,802 |
|
|
2,070 |
Amortization of intangible assets |
|
|
46
|
|
|
460
|
|
|
140
|
|
|
1,404
|
Total operating expenses |
|
|
54,115
|
|
|
56,172
|
|
|
167,759
|
|
|
163,356
|
Income from operations |
|
|
9,728 |
|
|
28,265 |
|
|
15,006 |
|
|
33,835 |
Other income (expense), net: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
4,411 |
|
|
3,554 |
|
|
12,706 |
|
|
7,081 |
Interest expense |
|
|
(903) |
|
|
(1,000) |
|
|
(2,754) |
|
|
(2,781) |
Gain on sale of investments |
|
|
- |
|
|
- |
|
|
223 |
|
|
1,793 |
Other income (expense), net |
|
|
(1,144)
|
|
|
(496)
|
|
|
(2,988)
|
|
|
(847)
|
Total other income, net |
|
|
2,364
|
|
|
2,058
|
|
|
7,187
|
|
|
5,246
|
Income from continuing operations before provision for |
|
|
|
|
|
|
|
|
|
|
|
|
income taxes |
|
|
12,092 |
|
|
30,323 |
|
|
22,193 |
|
|
39,081 |
Provision for income taxes |
|
|
2,033
|
|
|
10,258
|
|
|
5,361
|
|
|
13,591
|
Income from continuing operations |
|
|
10,059 |
|
|
20,065 |
|
|
16,832 |
|
|
25,490 |
Income (loss) from discontinued operations, net of taxes |
|
|
2,444
|
|
|
69,197
|
|
|
(62,575)
|
|
|
61,813
|
Net income (loss) |
|
$ |
12,503
|
|
$ |
89,262
|
|
$ |
(45,743)
|
|
$ |
87,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.14 |
|
$ |
0.30 |
|
$ |
0.24 |
|
$ |
0.38 |
Diluted |
|
|
0.14 |
|
|
0.28 |
|
|
0.24 |
|
|
0.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share from discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.03 |
|
$ |
1.03 |
|
$ |
(0.90) |
|
$ |
0.92 |
Diluted |
|
|
0.03 |
|
|
0.93 |
|
|
(0.88) |
|
|
0.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.18 |
|
$ |
1.33 |
|
$ |
(0.65) |
|
$ |
1.30 |
Diluted |
|
|
0.17 |
|
|
1.21 |
|
|
(0.64) |
|
|
1.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
70,830 |
|
|
67,283 |
|
|
69,894 |
|
|
67,016 |
Diluted |
|
|
77,829 |
|
|
74,414 |
|
|
70,956 |
|
|
74,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
70,830 |
|
|
67,283 |
|
|
69,894 |
|
|
67,016 |
Diluted |
|
|
77,829 |
|
|
74,414 |
|
|
70,956 |
|
|
74,524 |
See notes to unaudited condensed consolidated financial statements.
3
TEKELEC
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Thousands) |
|
|
|
|
Net income (loss) |
|
$ |
12,503 |
|
$ |
89,262 |
|
$ |
(45,743) |
|
$ |
87,303 |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
972 |
|
|
(51) |
|
|
1,431 |
|
|
227 |
Net unrealized gain on available-for-sale securities, net of income taxes |
|
|
29
|
|
|
187
|
|
|
154
|
|
|
458
|
Comprehensive income (loss) |
|
$ |
13,504
|
|
$ |
89,398
|
|
$ |
(44,158)
|
|
$ |
87,988
|
See notes to unaudited condensed consolidated financial statements.
4
TEKELEC
Unaudited Condensed Consolidated Statements of Cash Flows
|
|
|
Nine Months Ended |
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Thousands) |
Cash flows from operating activities: |
|
|
|
|
|
|
Net income (loss) |
|
$ |
(45,743) |
|
$ |
87,303 |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
|
62,575 |
|
|
(61,813) |
Gain on sale of investments |
|
|
(223) |
|
|
(1,793) |
Provision for (recoveries of) doubtful accounts and returns |
|
|
(65) |
|
|
457 |
Inventory write downs |
|
|
8,626 |
|
|
4,092 |
Depreciation |
|
|
11,524 |
|
|
8,981 |
Amortization of intangibles |
|
|
1,899 |
|
|
3,166 |
Amortization, other |
|
|
1,325 |
|
|
3,016 |
Deferred income taxes |
|
|
2,647 |
|
|
(9,069) |
Stock-based compensation |
|
|
12,086 |
|
|
15,343 |
Excess tax benefits from stock-based compensation |
|
|
(4,172) |
|
|
(448) |
Changes in operating assets and liabilities, net of business disposal: |
|
|
|
|
|
|
Accounts receivable |
|
|
22,755 |
|
|
(22,181) |
Inventories |
|
|
(3,224) |
|
|
(10,187) |
Deferred costs |
|
|
5,419 |
|
|
3,224 |
Prepaid expenses and other current assets |
|
|
14,309 |
|
|
(6,154) |
Trade accounts payable |
|
|
(7,243) |
|
|
5,211 |
Income taxes receivable/payable |
|
|
9,127 |
|
|
(21,953) |
Accrued expenses |
|
|
(13,193) |
|
|
161 |
Accrued payroll and related expenses |
|
|
(9,241) |
|
|
(3,004) |
Deferred revenues |
|
|
(42,450)
|
|
|
17,204
|
Total adjustments |
|
|
72,481
|
|
|
(75,747)
|
Net cash provided by operating activities - continuing operations |
|
|
26,738 |
|
|
11,556 |
Net cash used in operating activities - discontinued operations |
|
|
(18,565)
|
|
|
(2,040)
|
Net cash provided by operating activities |
|
|
8,173
|
|
|
9,516
|
Cash flows from investing activities: |
|
|
|
|
|
|
Proceeds from sales and maturities of investments |
|
|
487,399 |
|
|
656,743 |
Purchases of investments |
|
|
(486,912) |
|
|
(862,441) |
Purchases of property and equipment |
|
|
(13,916) |
|
|
(14,137) |
Change in other assets |
|
|
175
|
|
|
1,455
|
Net cash used in investing activities - continuing operations |
|
|
(13,254)
|
|
|
(218,380)
|
Net cash provided by (used in) investing activities - discontinued operations |
|
|
(3,241)
|
|
|
191,240
|
Net cash used in investing activities |
|
|
(16,495)
|
|
|
(27,140)
|
Cash flows from financing activities: |
|
|
|
|
|
|
Payments on notes payable |
|
|
- |
|
|
(96) |
Payments for repurchase of common stock |
|
|
(19,699) |
|
|
- |
Proceeds from issuance of common stock |
|
|
29,421 |
|
|
10,781 |
Excess tax benefits from stock-based compensation |
|
|
4,172
|
|
|
448
|
Net cash provided by financing activities |
|
|
13,894
|
|
|
11,133
|
Effect of exchange rate changes on cash |
|
|
1,527
|
|
|
249
|
Net change in cash and cash equivalents |
|
|
7,099 |
|
|
(6,242) |
Cash and cash equivalents, beginning of period |
|
|
45,329
|
|
|
52,069
|
Cash and cash equivalents, end of period |
|
|
52,428
|
|
|
45,827
|
Less cash and cash equivalents of discontinued operations |
|
|
-
|
|
|
645
|
Cash and cash equivalents of continuing operations, end of period |
|
$ |
52,428
|
|
$ |
45,182
|
See notes to unaudited condensed consolidated financial statements.
5
TEKELEC
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 — Basis of Presentation and Changes in Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Tekelec
and our wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The accompanying unaudited
condensed consolidated financial statements have been prepared on substantially the same basis as the audited consolidated financial statements
included in our Annual Report on Form 10-K for the year ended December 31, 2006. Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States have been
condensed or omitted pursuant to the instructions for Form 10-Q and Article 10 of Regulation S-X.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements
reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of our consolidated financial condition and
consolidated results of operations. The results of operations for the current interim period are not necessarily indicative of results for the current
year.
We operate under a thirteen-week calendar quarter. For financial statement presentation purposes, the reporting periods are referred to as
ended on the last calendar day of the quarter. The accompanying unaudited condensed consolidated financial statements for the three and nine
months ended September 30, 2007 and 2006 are for the thirteen and thirty-nine weeks ended September 28, 2007 and September 29, 2006,
respectively.
The following unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements
for the year ended December 31, 2006 and the notes thereto in our Annual Report on Form 10-K for the year ended December 31,
2006.
Accounting for Uncertain Tax Positions
In July 2006, the Financial Accounting Standards Board (the "FASB") issued FASB Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109" ("FIN 48"), which clarifies
the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. This Interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a
tax return. Specifically, FIN 48 requires the recognition in financial statements of the impact of a tax position, if that position is more likely than not of
being sustained on audit, based on the technical merits of the position. Additionally, FIN 48 provides guidance on (i) the derecognition of previously
recognized deferred tax items, (ii) financial statement classification of contingent tax liabilities, (iii) accounting for interest and penalties, and (iv)
accounting in interim periods related to uncertain tax positions, as well as requires expanded disclosures. FIN 48 is effective for fiscal years
beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening
retained earnings.
Effective January 1, 2007, we adopted the provisions of, and account for uncertain tax positions in accordance with, FIN 48. The cumulative
effect of the adoption of the recognition and measurement provisions of FIN 48 resulted in no impact to the January 1, 2007 balance of retained
earnings. Our policy for the classification of interest and penalties related to income tax exposures was not impacted as a result of the adoption of
FIN 48. We will continue to recognize interest and penalties as incurred as a component of provision for income taxes in the unaudited condensed
consolidated statements of operations.
Restructuring and Related Expenses
Our severance policies include all officers and employees and the pre-defined severance benefits are communicated to all employees. We
account for costs incurred under these severance plans, with the exception of obligations created under labor laws such as the Workers' Adjustment
and Retraining Notification Act (the "WARN Act"), in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 112 "Employers' Accounting for Postemployment Benefits" ("SFAS 112"). We account for obligations incurred under the
WARN Act and local labor laws in accordance with SFAS No. 88 "Employers' Accounting for Settlements and Curtailments of Defined
6
Benefit Pension Plans and for Terminations Benefits" ("SFAS 88"). Under SFAS 112 and SFAS 88, we record these
obligations when the obligations are estimable and probable.
We account for one-time termination benefits, contract termination costs and other related exit costs in accordance with SFAS No. 146
"Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is incurred, as opposed to when management commits to an exit plan.
SFAS 146 also requires that (i) liabilities associated with exit and disposal activities be measured at fair value, (ii) one-time termination benefits be
expensed at the date the entity notifies the employee, unless the employee must provide future service, in which case the benefits are expensed
ratably over the future service period, (iii) liabilities related to an operating lease/contract be recorded at fair value and measured when the contract
does not have any future economic benefit to the entity (i.e., the entity ceases to utilize the rights conveyed by the contract), and (iv) all other costs
related to an exit disposal activity be expensed as incurred.
Restructuring liabilities are included in accrued expenses and liabilities associated with Switching Solutions Group business ("SSG")
and the related costs are reflected as operating expenses or included in the loss from discontinued operations, net of taxes, in the accompanying
unaudited condensed consolidated financial statements.
Segment Information
We disclose information concerning our operating segments in accordance with SFAS No 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires segmentation based on our internal organization and
reporting of revenue and operating income based upon internal accounting methods commonly referred to as the "management
approach." Operating segments are defined as components of an enterprise about which separate financial information is available that is
evaluated regularly by the Chief Operating Decision Maker ("CODM"), or decision-making group, in deciding how to allocate resources
and in assessing performance. Our CODM is our Chief Executive Officer.
Prior to the third quarter of 2007, our reportable segments consisted of two business units, the Network Signaling Group ("NSG") and
the Communications Software Solutions Group ("CSSG"). During the third quarter of 2007, through the process of an organizational
realignment designed to (i) consolidate our business units, (ii) improve customer focus, (iii) accelerate decisions pertaining to product integration and
evolution, and (iv) increase our focus on delivering integrated product solutions, these two business units were combined into one reporting
segment. This internal reorganization resulted in changes to our internal accounting and reporting processes, as well as in our management
structure and related responsibilities. As a result of this realignment, for purposes of making operating decisions and assessing financial
performance, our CODM reviews financial information presented on a consolidated basis only, accompanied by disaggregated information about
product and service revenues.
Because we no longer have multiple reportable segments as defined by the criteria of SFAS 131, we consider ourselves to be in a single
reportable segment, specifically the development and sale of signaling telecommunications and related value-added applications and services. In
accordance with SFAS 131, we have eliminated all segment information related to our previous business unit structure for the three and nine months
ended September 30, 2007 in the accompanying unaudited condensed consolidated financial statements, with prior period information conformed to
this new presentation. We will continue to provide enterprise wide disclosures as required by SFAS 131 in our interim unaudited condensed
consolidated financial statements and our annual consolidated financial statements.
Recent Accounting Pronouncements
Fair Value Option. In February 2007, the FASB issued SFAS No. 159 "The Fair Value Option for Financial
Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 permits entities to choose, at specified election dates, to measure
eligible items at fair value (the "Fair Value Option"). Unrealized gains and losses on items for which the Fair Value Option has been
elected are reported in earnings. The Fair Value Option is applied instrument by instrument (with certain exceptions), is irrevocable (unless a new
election date occurs) and is applied only to an entire instrument. The effect of the first remeasurement to fair value is reported as a cumulative-effect
adjustment to the opening balance of retained earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We do not
expect the adoption of SFAS 159 to have a material impact on our consolidated financial position, results of operations or cash flows.
7
Fair Value Measurement. In September 2006, the FASB issued SFAS No. 157 "Fair Value Measurements"
("SFAS 157"), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles
("GAAP"), and expands disclosures about fair value measurements. This Statement applies to other accounting pronouncements that
require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant
measurement attribute. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. We do not expect the adoption of SFAS 157 to have a material impact on our consolidated financial position,
results of operations or cash flows.
Note 2 — Discontinued Operations
Disposition of SSG
On March 20, 2007, we entered into an agreement to sell SSG to GENBAND Inc. ("Genband"), for approximately $1.0
million in cash and a 19.99% interest in Genband's outstanding vested voting equity, after giving effect to the issuance. Our SSG business
consisted primarily of (i) Taqua, Inc., our then wholly owned subsidiary, (ii) Santera Systems LLC, our then wholly owned subsidiary, and (iii) certain
assets of the SSG business then owned directly by Tekelec as a result of the 2006 merger of our former subsidiary, VocalData, Inc., into
Tekelec.
The closing of the sale occurred on April 21, 2007 (the "Closing"). In connection with this transaction we recorded a pre-tax loss on
sale of $60.7 million (which included $3.2 million of professional fees) and a restructuring charge of $21.2 million during the nine months ended
September 30, 2007. The professional fees associated with the disposition of SSG consisted primarily of investment banking fees and legal,
accounting, and other professional fees. The restructuring charges consisted primarily of: (i) a provision for employee severance costs, (ii) the
write-off of certain leasehold improvements and other assets associated with the space formerly occupied by the SSG business, and (iii) certain lease exit
costs also associated with the space formerly occupied by the SSG business. While we do not currently expect to incur any additional restructuring
charges associated with our disposition of SSG, should our estimates of these costs change, such change in estimate will be reflected within
discontinued operations in the period the estimate is revised.
The common stock interest in Genband received at Closing was valued at $11.2 million in accordance with the principles established in the
AICPA Practice Aid — "Valuation of Privately Held Equity Issued as Compensation." This amount excludes the value of additional shares
(consisting of 25% of the total number of the Genband shares issued at Closing) that will be held in escrow for one year from the Closing to secure
potential indemnification claims of Genband arising during that period. We account for our equity interest using the cost method and this investment
is included under the caption "Investments in privately-held companies" in the accompanying unaudited condensed consolidated balance
sheet as of September 30, 2007.
In accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets," we have reported the results of
the SSG business as discontinued operations for all periods presented. The results of the SSG operations were previously reported as the
Switching Solutions Group reporting segment.
The operating results of the SSG business through the date of disposition on April 21, 2007 classified as discontinued operations were as
follows (in thousands):
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
Revenues |
|
$ |
-
|
|
$ |
20,882
|
|
$ |
27,682
|
|
$ |
80,904
|
Loss from discontinued operations before |
|
|
|
|
|
|
|
|
|
|
|
|
provision for income taxes |
|
$ |
(4,569) |
|
$ |
(126,146) |
|
$ |
(42,148) |
|
$ |
(157,149) |
Benefit from income taxes |
|
|
(2,194)
|
|
|
(18,564)
|
|
|
(16,497)
|
|
|
(29,608)
|
Loss from discontinued operations, net of income taxes |
|
|
(2,375) |
|
|
(107,582) |
|
|
(25,651) |
|
|
(127,541) |
Gain (loss) on sale of discontinued operations, net of taxes |
|
|
4,819
|
|
|
-
|
|
|
(36,924)
|
|
|
-
|
Loss from discontinued operations, net of taxes |
|
$ |
2,444
|
|
$ |
(107,582)
|
|
$ |
(62,575)
|
|
$ |
(127,541)
|
In connection with the disposition of SSG we incurred, for income tax purposes, a capital loss of $45.4 million. Of this amount, approximately
$32.7 million can be carried back to previous years to offset capital gains, resulting in a recovery of cash income taxes paid in those years. Of the
remaining $12.7 million capital loss, we expect to utilize
8
$1.5 million to offset estimated 2007 capital gains and have recorded a deferred tax asset of
$3.9 million related to the $11.2 million capital loss that will be carried forward to future years. We have recorded a full valuation allowance of $3.9
million against this deferred tax asset, as it is not more likely than not that we will realize the tax benefit of this carry forward in future income tax
returns.
During the third quarter, we revised our estimates as to the amount of capital loss that can be carried back and offset against capital gains
recorded in prior years' income tax returns. As a result of this change in estimate, we reduced our valuation allowance by $4.8 million, which is
reflected in the above table as an income tax benefit in "Gain (loss) on sale of discontinued operations, net of taxes" for the three and
nine months ended September 30, 2007.
The assets and liabilities of the SSG business classified as held for sale as of December 31, 2006 were as follows (in thousands):
Cash and cash equivalents |
|
$ |
122 |
Accounts receivable, net |
|
|
29,572 |
Inventories |
|
|
23,712 |
Income taxes receivable |
|
|
33 |
Deferred income taxes, net |
|
|
15,142 |
Prepaid expenses and other current assets |
|
|
13,078 |
Property and equipment, net |
|
|
16,875 |
Other assets |
|
|
983 |
Intangible assets, net |
|
|
4,819 |
Goodwill |
|
|
14,005
|
Assets of discontinued operations |
|
$ |
118,341
|
|
|
|
|
Trade accounts payable |
|
$ |
4,463 |
Accrued expenses, accrued payroll and related expenses |
|
|
10,204 |
Deferred revenues |
|
|
26,324
|
Liabilities of discontinued operations |
|
$ |
40,991
|
Included in the accompanying unaudited condensed consolidated balance sheet as of September 30, 2007 are certain liabilities incurred in
connection with the disposition of SSG and certain liabilities of SSG retained by us. These liabilities are included under the caption "Liabilities
associated with SSG" in the accompanying unaudited condensed consolidated balance sheet as of September 30, 2007 and consist primarily
of the remaining restructuring liability associated with the restructuring activities discussed above and certain liabilities incurred prior to the
disposition and retained by us in accordance with the terms of our agreement with Genband.
In connection with the disposition of SSG, we entered into a Transition Services Agreement with Genband, under which, for a period of up to six
months after closing of the SSG sale, we agreed to provide Genband with certain administrative support services, including information technology,
systems integration and connectivity support and other services in order to facilitate an orderly transition of the SSG business to Genband. In
addition, we entered into a sublease agreement under which we subleased to Genband approximately 38,000 square feet of office space in Plano,
Texas. As of September 30, 2007, we have an outstanding receivable from Genband of $408,000 related to these arrangements.
Disposition of IEX
On April 27, 2006, we entered into a Stock Purchase Agreement pursuant to which we agreed to sell to NICE-Systems, Inc., all of the
outstanding shares of capital stock of IEX Corporation (the "IEX Shares"), our then wholly owned subsidiary ("IEX"). We
classified the IEX business as discontinued operations in the second quarter of 2006. The closing of the sale of the IEX Shares occurred on
July 6, 2006, resulting in total cash proceeds of approximately $201.5 million and a pre-tax gain of approximately $200.1 million ($177.5
million after tax) in the year ended December 31, 2006.
9
Financial results of IEX are reported separately as discontinued operations for all periods presented. Prior to the sale, results of IEX operations
were reported as the IEX Contact Center Group operating segment. Summarized results of operations for IEX for the three and nine months ended
September 30, 2006 were as follows (in thousands):
|
|
|
Three |
|
|
Nine |
|
|
|
Months |
|
|
Months |
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30, 2006
|
Revenues |
|
$ |
-
|
|
$ |
36,113
|
Income (loss) from discontinued operations before |
|
|
|
|
|
|
provision for income taxes |
|
|
(1,062) |
|
|
18,587 |
Provision for (benefit from) income taxes |
|
|
(383)
|
|
|
6,691
|
Income (loss) from operations of discontinued operations, net of income taxes |
|
|
(679) |
|
|
11,896 |
Gain on sale of discontinued operations, net of taxes |
|
|
177,458
|
|
|
177,458
|
Income from discontinued operations, net of income taxes |
|
$ |
176,779
|
|
$ |
189,354
|
Note 3 — Restructuring Costs
2007 Restructurings
As further discussed in Note 11, during the third quarter of 2007 we initiated an organizational realignment designed to (i) consolidate
our business units, (ii) improve customer focus, (iii) accelerate decisions pertaining to product integration and evolution, and (iv) increase our focus
on delivering integrated product solutions (the "2007 Realignment"). As a result of the 2007 Realignment, five senior employees have
exited the Company or will exit the Company upon completion of their transitional roles designed to facilitate the integration of our former business
units. In connection with these events, we incurred charges of $1.9 million related to employee severance and associated benefits and $0.3 million
related to direct costs associated with transition activities which consisted primarily of salaries and related benefits. These costs are reflected in
restructuring and other expense from continuing operations in the accompanying unaudited condensed consolidated statements of operations. We
continue to evaluate additional synergies associated with combining our business units and may incur additional restructuring charges in the
remainder of 2007 as part of our effort to better align our cost structure with our current expectations for revenues and orders.
The costs currently expected to be incurred and cumulative costs incurred related to the 2007 Realignment are as follows (in thousands):
|
|
|
Total Costs |
|
|
Cumulative Costs |
|
|
|
Expected to be |
|
|
Incurred through |
|
|
|
Incurred
|
|
|
September 30, 2007
|
Severance costs and related benefits
|
|
$ |
1,936 |
|
$ |
1,936 |
Transition related costs |
|
|
337
|
|
|
296
|
Total restructuring charges |
|
$ |
2,273
|
|
$ |
2,232
|
In June 2007, we initiated a restructuring of our operations (the "2007 Restructuring") in order to better align our organizational
structure with our anticipated future revenues and the anticipated administrative support needs of our business following the sale of our SSG
business. We completed this restructure in July 2007. In connection with this restructuring, we terminated a total of 33 domestic and international
positions and incurred $0.1 million and $2.6 million of restructuring costs, consisting primarily of employee severance and associated benefits costs,
for the three and nine months ended September 30, 2007, respectively. These costs are reflected in continuing operations in the accompanying
unaudited condensed consolidated statements of operations.
10
The costs expected to be incurred and cumulative costs incurred related to the 2007 Restructuring are as follows (in thousands):
|
|
|
Total Costs |
|
|
Cumulative Costs |
|
|
|
Expected to be |
|
|
Incurred through |
|
|
|
Incurred
|
|
|
September 30, 2007
|
Severance costs and related benefits
|
|
$ |
2,569
|
|
$ |
2,569
|
Total restructuring charges |
|
$ |
2,569
|
|
$ |
2,569
|
In the third quarter of 2007, in connection with our disposition of SSG and our related restructuring (the "SSG Restructuring"), we
incurred $4.6 million and $21.2 million of restructuring costs for the three and nine months ended September 30, 2007, respectively. These costs
consisted primarily of (i) a provision for employee severance costs, (ii) the write-off of certain leasehold improvements and other assets associated
with the space formerly occupied by the SSG business, and (iii) certain lease exit costs also associated with the space formerly occupied by the SSG
business. These costs are reflected in discontinued operations in the accompanying unaudited condensed consolidated statements of operations.
The SSG Restructuring involved the termination of approximately 165 full time positions that directly or indirectly supported our SSG business.
The costs expected to be incurred and cumulative costs incurred related to the SSG Restructuring are as follows (in thousands):
|
|
|
Total Costs |
|
|
Cumulative Costs |
|
|
|
Expected to be |
|
|
Incurred through |
|
|
|
Incurred
|
|
|
September 30, 2007
|
Severance costs and related benefits
|
|
$ |
10,950 |
|
$ |
10,950 |
Non-cash facilities consolidation |
|
|
6,064 |
|
|
6,064 |
Lease exit costs and other |
|
|
4,192
|
|
|
4,192
|
Total restructuring charges |
|
$ |
21,206
|
|
$ |
21,206
|
2006 Restructuring
In 2006, we committed to a restructuring plan which involved the termination of 152 full time positions; the termination of approximately 25
contractors; and the decision not to fill 22 open positions. The majority of the terminated employees worked directly for, or in support of, our SSG
business in Plano, Texas. In addition, we incurred charges in 2006 under a retention agreement, and severance benefits under our 1993 Officer
Severance Plan, in connection with the resignation of our California-based Senior Vice President, Corporate Affairs and General Counsel effective
December 31, 2006. The resignation was the result of the relocation of our corporate headquarters to North Carolina from California.
In connection with the 2006 Restructuring, we recorded pre-tax restructuring charges of approximately $7.4 million during fiscal 2006 ($2.0
million of which is reflected in continuing operations and $5.4 million of which is reflected in discontinued operations). We have not incurred any
additional charges in 2007, and we do not expect to incur any additional costs related to the 2006 Restructuring in the future. All remaining balances
accrued in connection with the 2006 Restructuring are expected to be paid out in 2007.
11
Reconciliation of restructuring obligations
The following table provides detail on our restructuring activities and the remaining obligations as of September 30, 2007 (in thousands):
|
|
|
Severance |
|
|
|
|
|
|
|
|
|
Costs and |
|
|
Facility |
|
|
|
|
|
|
Related |
|
|
Exit |
|
|
|
|
|
|
Benefits
|
|
|
Costs
|
|
|
Total
|
Restructuring obligations, December 31, 2006 |
|
$ |
2,596 |
|
$ |
- |
|
$ |
2,596 |
|
|
|
|
|
|
|
|
|
|
Restructuring and related expenses |
|
|
|
|
|
|
|
|
|
SSG Restructuring (1)
|
|
|
10,950 |
|
|
4,192 |
|
|
15,142 |
SSG exit cost reclass (2)
|
|
|
- |
|
|
758 |
|
|
758 |
2007 Restructuring |
|
|
2,569 |
|
|
|
|
|
2,569 |
2007 Realignment |
|
|
2,232 |
|
|
|
|
|
2,232 |
Cash payments |
|
|
(13,177)
|
|
|
(402)
|
|
|
(13,579)
|
Restructuring obligations, September 30, 2007 |
|
$ |
5,170
|
|
$ |
4,548
|
|
$ |
9,718
|
- Excludes a non-cash charge of $6.1 million associated with certain leasehold improvements, furniture and fixtures and other equipment
abandoned as part of our exit of our facilities utilized by our SSG business unit.
- During the third quarter of 2007 we reclassified deferred rent, net of a lease deposit, associated with the space formerly occupied by the SSG
business unit from accrued liabilities into restructuring liabilities.
Restructuring obligations are included in "Accrued expenses" ($4.2 million) and "Liabilities associated with SSG" ($5.5
million) in the accompanying unaudited condensed consolidated balance sheets. We anticipate settling our remaining severance obligations during
2007 and 2008, and our facility-related costs through 2013. This is based on our current best estimate, which could change materially if actual
activity differs from what is currently expected. We will continue to review the status of our restructuring activities quarterly and, if appropriate, record
changes in our restructuring obligations in current operations or discontinued operations based on our most current estimates.
Note 4 — Financial Statement Details
Accounts Receivable, net
Accounts receivable, net consists of the following (in thousands):
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2007
|
|
|
2006
|
Trade accounts receivable |
|
$ |
115,735 |
|
$ |
139,461 |
Less: Allowance for doubtful accounts and sales returns |
|
|
5,909
|
|
|
6,411
|
|
|
$ |
109,826
|
|
$ |
133,050
|
Inventories
Inventories consist of the following (in thousands):
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2007
|
|
|
2006
|
Raw materials |
|
$ |
15,932 |
|
$ |
16,022 |
Work in process |
|
|
195 |
|
|
179 |
Finished goods |
|
|
5,873
|
|
|
9,538
|
Total inventory
|
|
$ |
22,000
|
|
$ |
25,739
|
12
Note 5 — Intangible Assets and Goodwill
Intangible Assets
Intangible assets consist of the following (in thousands):
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2007
|
|
|
2006
|
Purchased technology |
|
$ |
23,490 |
|
$ |
23,490 |
Customer relationships |
|
|
1,030 |
|
|
1,030 |
Non-compete contracts |
|
|
240
|
|
|
240
|
|
|
|
24,760 |
|
|
24,760 |
Less: accumulated amortization
|
|
|
(7,116)
|
|
|
(5,217)
|
Total intangible assets |
|
$ |
17,644
|
|
$ |
19,543
|
The identifiable intangible assets are amortized over their estimated useful lives. The estimated future
intangibles amortization expense as of September 30, 2007 is as follows (in thousands):
For the Years Ending December 31, |
|
|
|
|
|
|
2007 (remaining three months)
|
|
|
|
|
$ |
633 |
2008 |
|
|
|
|
|
2,495 |
2009 |
|
|
|
|
|
2,452 |
2010 |
|
|
|
|
|
2,452 |
2011 |
|
|
|
|
|
2,452 |
Thereafter |
|
|
|
|
|
7,160
|
Total |
|
|
|
|
$ |
17,644
|
Goodwill
The carrying amount of goodwill as of September 30, 2007 is as follows (in thousands):
Balance at December 31, 2006
|
|
$ |
26,876 |
Additions |
|
|
-
|
Balance at September 30, 2007 |
|
$ |
26,876
|
As required by SFAS 142 "Goodwill and Other Intangible Assets," we do not amortize our goodwill balances, but instead test our
goodwill for impairment at the reporting unit level annually on October 1 and more frequently upon the occurrence of any events that may indicate
impairment. As a result of the consolidation of our NSG and CSSG reporting segments, as discussed above, and consistent with our determination
that we only have one reporting segment under SFAS 131, we have determined we only have one reporting unit under SFAS 142.
Note 6 — Income Taxes
During the three and nine months ended September 30, 2007, income taxes related to continuing operations as a percentage of pretax income
(the "Effective Rate") were 17% and 24%, respectively. Our Effective Rate differs from the statutory rate of 35% principally due to (i) a
significant portion of our pretax income being derived from tax-exempt interest generated from our investment portfolio for both 2007 and 2006, and
(ii) certain discrete income tax benefits recorded during the third quarter of 2007.
As part of the process of preparing our unaudited condensed consolidated financial statements, we are required to estimate our full-year income
and the related income tax expense in each jurisdiction in which we operate. Changes in the geographical mix or estimated level of annual pretax
income can impact our Effective Rate. This process involves estimating our current tax liabilities in each jurisdiction in which we operate, including
the impact, if any, of additional taxes resulting from tax examinations, as well as making judgments regarding the recoverability of deferred tax
assets.
13
Tax liabilities can involve complex issues and may require an extended period to resolve. To the extent recovery of deferred tax assets is not
more likely than not based on our estimate of future taxable income in each jurisdiction, a valuation allowance is established. While we have
considered future taxable income and the existence of prudent and feasible tax planning strategies in assessing our valuation allowance, in the
event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, we would charge to income an
adjustment to the valuation allowance in the period such determination was made.
Our U.S. Federal income tax returns for 2002 through 2006 have been selected for examination by the Internal Revenue Service ("IRS"). While
the final resolution of the IRS's pending examination is uncertain, we believe we have made adequate provision in the accompanying unaudited
condensed consolidated financial statements for any adjustments that the IRS may propose with respect to the U.S. Federal income tax returns.
Based on currently available information, management believes that the ultimate outcome will not have a material adverse effect on our financial
position, cash flows or results of operations. We may, however, receive an assessment related to the audit of our U.S. income tax returns that
exceeds amounts provided for by us. In the event of such an assessment, there exists the possibility of a material adverse impact on our results of
operations for the period in which the matter is ultimately resolved or an unfavorable outcome is more likely than not to occur.
Note 7 — Uncertain Tax Positions
On January 1, 2007, we adopted the provisions of FIN 48. Upon the adoption of FIN 48, we did not record an adjustment to the balance of
retained earnings as of January 1, 2007. As of January 1, 2007 and September 30, 2007, the total amount of unrecognized income tax benefits was
$12.1 million and $14.1 million (including interest and penalties), respectively. The recognition of the total amount of unrecognized income tax
benefit of $14.1 million as of September 30, 2007 would have a material impact on the Company's effective tax rate.
We recognize interest and penalties related to uncertain tax positions in the provision for (benefit from) income taxes. As of January 1, 2007, the
total amount of interest and penalties related to the liability for uncertain tax positions was $2.1 million. During the nine months ended September 30,
2007, we accrued an additional $0.9 million of interest expense in the provision for income taxes.
On September 15, 2007, the statute of limitations for an IRS audit of our 2003 Federal income tax filing expired with the exception of a refund
claim made by filing an amended return for 2003, which remains subject to adjustment by the IRS. As a result, we have recognized previously
unrecognized income tax benefits related to the 2003 income tax filing of approximately $0.5 million in the financial statements for the three and nine
months ended September 30, 2007. This income tax benefit was recorded discretely in the provision for income taxes and did not have a material
impact on our consolidated Effective Rate for the three and nine months ended September 30, 2007. During the next twelve months, we expect
certain events to occur that may allow us to recognize previously unrecognized income tax benefits. These events include (i) the expiration of the
statute of limitations related to our 2004 income tax filings, and (ii) the expected settlement of the IRS examinations of our 2002 through 2006 tax
years (as discussed in Note 6 above). The range of previously unrecognized benefits that would be recognized if both of these events occur cannot
be reasonably estimated at this time, but may have a material impact on our consolidated Effective Rate.
As mentioned in Note 6, our 2002 through 2006 Federal income tax returns are currently under examination by the IRS. Certain tax return filings
outside of the United States remain open to examination by foreign tax authorities, but these filings, and the resulting tax liabilities, are not material
to our consolidated financial statements.
Note 8 — Commitments and Contingencies
Indemnities, Commitments and Guarantees
In the normal course of our business, we make certain indemnities, commitments and guarantees under which we may be required to make
payments in relation to certain transactions. These indemnities, commitments and guarantees include, among others, intellectual property,
confidentiality, gross negligence and willful misconduct indemnities to our customers in connection with the sale of our products and services and
licensing of our technology, indemnities for liabilities associated with the infringement of other parties' technology based upon our products, services
and technology, guarantees of timely performance of our obligations, indemnities related to the reliability of our equipment, and indemnities to our
directors and officers to the maximum extent permitted by law. The duration of these indemnities, commitments and guarantees varies, and, in
certain cases, is indefinite. Many of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential future
payments that we
14
could be obligated to make. We have not recorded a liability for these indemnities, commitments or guarantees in the accompanying unaudited
condensed consolidated balance sheets because future payment is not probable.
Litigation
From time to time, various claims and litigation are asserted or commenced against us arising from or related to contractual
matters, intellectual property matters, product warranties and personnel and employment disputes. As to such claims and litigation, we can give no
assurance that we will prevail. However, we currently do not believe that the ultimate outcome of any pending matters will have a material adverse
effect on our consolidated financial position, results of operations or cash flows.
In the first quarter of 2007, we settled a complaint originally filed in February 2005 by Bouygues Telecom, S.A. ("Bouygues"), a
French telecommunications operator. The terms of the settlement agreement are confidential; however, as part of the settlement, we agreed to
provide $5.0 million in credits to Bouygues which it can apply to its purchases of products and services from us. The remaining terms of the
settlement did not, and are not expected to, have a material impact on our operating results, financial position or cash flows. The settlement
agreement also provides for mutual releases and the dismissal of the lawsuit with prejudice.
In connection with this litigation and settlement, in the first quarter of 2007 we incurred approximately $712,000 in legal expenses, net of
insurance reimbursement received in 2007. We recorded the $5.0 million of credits as an increase in warranty expense, and reflected the
associated obligations related to the credits in deferred revenue.
Note 9 — Stock-Based Compensation
Stock-Based Awards Activity
The following table summarizes option and stock appreciation rights ("SARs") activity for the nine months ended September 30,
2007 (shares and dollars in thousands):
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
Number
|
|
|
Price
|
|
|
Life (years)
|
|
|
Value
|
Outstanding at December 31, 2006 |
|
18,125 |
|
$ |
16.86 |
|
|
|
|
|
|
Options and SARs granted |
|
339 |
|
|
14.34 |
|
|
|
|
|
|
Options exercised |
|
(2,397) |
|
|
11.33 |
|
|
|
|
|
|
Options cancelled/forfeited/expired |
|
(5,393)
|
|
|
18.24 |
|
|
|
|
|
|
Outstanding at September 30, 2007 |
|
10,674
|
|
$ |
17.33
|
|
|
3.02
|
|
$ |
3,073
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at
September 30, 2007 (1)
|
|
10,212
|
|
$ |
17.45
|
|
|
2.93
|
|
$ |
3,046
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2007 |
|
8,634
|
|
$ |
17.96
|
|
|
2.57
|
|
$ |
2,952
|
(1)
Options expected to vest are the result of applying the pre-vesting forfeiture rate assumptions to total outstanding
options.
15
The following table summarizes information about stock options and SARs outstanding and exercisable at September 30, 2007 (shares in
thousands):
|
|
Options and SARs Outstanding
|
|
Options / SARs Exercisable
|
|
|
|
|
Wgtd. Avg. |
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
Wgtd. Avg. |
|
|
|
|
Wgtd. Avg. |
|
|
|
|
Contractual |
|
|
Exercise |
|
|
|
|
Exercise |
Range of Exercise Price
|
|
Number
|
|
Life (years)
|
|
|
Price
|
|
Number
|
|
|
Price
|
$ 3.11 to $ 11.78 |
|
1,022 |
|
2.84 |
|
$ |
9.27 |
|
993 |
|
$ |
9.19 |
11.96 to 11.96 |
|
1,274 |
|
4.81 |
|
|
11.96 |
|
475 |
|
|
11.96 |
12.15 to 14.63 |
|
1,068 |
|
2.60 |
|
|
13.15 |
|
785 |
|
|
12.83 |
14.72 to 17.19 |
|
1,213 |
|
2.80 |
|
|
15.95 |
|
916 |
|
|
15.91 |
17.25 to 17.80 |
|
1,508 |
|
3.17 |
|
|
17.58 |
|
1,022 |
|
|
17.54 |
17.94 to 18.76 |
|
371 |
|
2.86 |
|
|
18.55 |
|
331 |
|
|
18.53 |
18.80 to 18.80 |
|
1,146 |
|
2.35 |
|
|
18.80 |
|
1,043 |
|
|
18.80 |
19.21 to 20.22 |
|
1,102 |
|
3.35 |
|
|
19.45 |
|
1,102 |
|
|
19.45 |
20.34 to 25.31 |
|
1,650 |
|
2.35 |
|
|
24.01 |
|
1,647 |
|
|
24.01 |
25.38 to 2,739.21 |
|
320
|
|
2.87 |
|
|
34.12 |
|
320
|
|
|
34.12 |
Total |
|
10,674
|
|
3.02 |
|
$ |
17.33 |
|
8,634
|
|
$ |
17.96 |
The following table summarizes Restricted Stock Unit ("RSU") activity for the nine months ended September 30, 2007 (shares in
thousands):
|
|
|
|
|
Weighted |
|
|
|
|
|
Average |
|
|
|
|
|
Grant Date |
|
|
Number
|
|
|
Fair Value
|
Outstanding at December 31, 2006 |
|
972 |
|
$ |
13.49 |
Awarded |
|
613 |
|
|
13.81 |
Released |
|
(214) |
|
|
13.42 |
Forfeited |
|
(180)
|
|
|
12.41 |
Outstanding at September 30, 2007 |
|
1,191
|
|
$ |
13.83
|
Stock-Based Compensation Expense
Effective January 1, 2006, we account for our employee stock-based compensation plans using the fair value method, as prescribed
by Statement of Financial Accounting Standards No. 123 (revised 2004) "Share-Based Payment" ("SFAS 123R").
Accordingly, we estimate the grant date fair value of our stock-based awards and amortize this fair value to compensation expense over the requisite
service period or vesting term. To estimate the fair value of our stock option awards and employee stock purchase plan shares we currently use the
Black-Scholes option-pricing model. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing
model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our
expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and
expected dividends. Due to the inherent limitations of option-valuation models available today, including future events that are unpredictable and the
estimation process utilized in determining the valuation of the stock-based awards, the ultimate value realized by our employees may vary
significantly from the amounts expensed in our financial statements. For restricted stock or restricted stock unit awards, we measure the grant date
fair value based upon the market price of our common stock on the date of the grant and amortize this fair value to compensation expense over the
requisite service period or vesting term.
Prior to the second quarter of 2007, our stock-based awards had been service-based only. In May 2007, we awarded our President and Chief
Executive Officer 100,000 RSUs that also contain performance-based criteria. The number of RSUs eligible for vesting is based on our attainment of
specific performance goals set by the Board of Directors, and, to the extent the RSUs become eligible for vesting based on our achievement of those
goals, the RSUs are subject to a vesting period of four years with vesting criteria based on continued employment. To the extent that we believe it is
probable that the performance goals will be achieved, the expense associated with this grant will be accrued according to the vesting schedule of the
award beginning in the period when achievement is considered
16
probable. We will reassess the probability of the performance conditions being
achieved at each reporting period and will adjust the accrual for subsequent changes in the estimated or actual outcome. Based on the Company's
performance through the third quarter of 2007, we believe it is probable that these performance goals will be achieved, and we have recorded stock
based compensation expense accordingly.
SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from initial estimates. Stock-based compensation expense was recorded net of estimated forfeitures for the three and nine months ended
September 30, 2007 and 2006 such that expense was recorded only for those stock-based awards that are expected to vest.
Total stock-based compensation recognized in our unaudited condensed consolidated statements of operations for the three months ended
September 30, 2007 and 2006 is as follows (in thousands):
|
|
|
Option and |
|
|
|
|
|
|
|
|
|
SAR Grants |
|
|
|
|
|
|
|
|
|
and Stock |
|
|
|
|
|
|
|
|
|
Purchase |
|
|
|
|
|
|
Income Statement Classifications |
|
|
Rights
|
|
|
RSUs
|
|
|
Total
|
Three months ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
$ |
308 |
|
$ |
57 |
|
$ |
365 |
Research and development |
|
|
437 |
|
|
53 |
|
|
490 |
Sales and marketing |
|
|
580 |
|
|
279 |
|
|
859 |
General and administrative |
|
|
787
|
|
|
859
|
|
|
1,646
|
Total continuing operations |
|
|
2,112 |
|
|
1,248 |
|
|
3,360 |
Discontinued operations |
|
|
35
|
|
|
-
|
|
|
35
|
Total |
|
$ |
2,147
|
|
$ |
1,248
|
|
$ |
3,395
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2006 |
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
$ |
575 |
|
$ |
15 |
|
$ |
590 |
Research and development |
|
|
1,206 |
|
|
4 |
|
|
1,210 |
Sales and marketing |
|
|
1,230 |
|
|
43 |
|
|
1,273 |
General and administrative |
|
|
1,445
|
|
|
631
|
|
|
2,076
|
Total continuing operations |
|
|
4,456 |
|
|
693 |
|
|
5,149 |
Discontinued operations |
|
|
3,609
|
|
|
56
|
|
|
3,665
|
Total |
|
$ |
8,065
|
|
$ |
749
|
|
$ |
8,814
|
17
Total stock-based compensation recognized in our unaudited condensed consolidated statements of operations for the nine months ended
September 30, 2007 and 2006 is as follows (in thousands):
|
|
|
Option and |
|
|
|
|
|
|
|
|
|
SAR Grants |
|
|
|
|
|
|
|
|
|
and Stock |
|
|
|
|
|
|
|
|
|
Purchase |
|
|
|
|
|
|
Income Statement Classifications |
|
|
Rights
|
|
|
RSUs
|
|
|
Total
|
Nine months ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
$ |
1,138 |
|
$ |
150 |
|
$ |
1,288 |
Research and development |
|
|
2,085 |
|
|
122 |
|
|
2,207 |
Sales and marketing |
|
|
2,100 |
|
|
569 |
|
|
2,669 |
General and administrative |
|
|
3,414
|
|
|
2,508
|
|
|
5,922
|
Total continuing operations |
|
|
8,737 |
|
|
3,349 |
|
|
12,086 |
Discontinued operations |
|
|
2,798
|
|
|
(159)
|
|
|
2,639
|
Total |
|
$ |
11,535
|
|
$ |
3,190
|
|
$ |
14,725
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2006 |
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
$ |
1,868 |
|
$ |
15 |
|
$ |
1,883 |
Research and development |
|
|
3,817 |
|
|
4 |
|
|
3,821 |
Sales and marketing |
|
|
3,989 |
|
|
43 |
|
|
4,032 |
General and administrative |
|
|
4,206
|
|
|
1,401
|
|
|
5,607
|
Total continuing operations |
|
|
13,880 |
|
|
1,463 |
|
|
15,343 |
Discontinued operations |
|
|
11,308
|
|
|
56
|
|
|
11,364
|
Total |
|
$ |
25,188
|
|
$ |
1,519
|
|
$ |
26,707
|
Note 10 — Stockholders' Equity
Stock Repurchase Program
In August 2007, our Board of Directors approved a stock repurchase program that authorized the repurchase of up to $50.0 million of our
common stock pursuant to a Rule 10b5-1 trading plan adopted under the rules of the Securities and Exchange Commission. Stock repurchases
under this program are to be funded from available working capital. The pace of our stock repurchase activity will depend on several factors such as
our working capital needs, our stock price, regulatory requirements, and other economic and market conditions. Our stock repurchase program may
be terminated at any time.
As of September 30, 2007, approximately 1.6 million shares have been repurchased for approximately $19.7 million. Through October 25, 2007,
we have repurchased approximately 2.5 million shares for approximately $30.8 million. These shares and the related repurchase costs have been
reflected as a reduction to common stock.
Note 11 — Operating Segment Information
Prior to the third quarter of 2007, we were organized into two major operating groups: the Network
Signaling Group and the Communications Software Solutions Group. In August 2007, we committed to a realignment plan designed to (i)
consolidate our business units, (ii) improve customer focus, (iii) accelerate decisions pertaining to product integration and evolution, and (iv) increase
our focus on delivering integrated product solutions. Accordingly, we combined the above two business units into one organizational structure in the
third quarter of 2007. As a result of these organizational changes, beginning in the third quarter of fiscal year 2007, our management structure and
responsibilities, as well as our management reporting methods, have changed, leading to elimination of the Company's reportable segments as
defined by SFAS 131. We will continue to present enterprise-wide disclosure information as required by SFAS 131.
18
Enterprise-Wide Disclosures
The following table sets forth, for the periods indicated, revenues from external customers
by our principal product lines (in thousands):
|
|
|
Revenues from External Customers |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
Product revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Eagle and other signaling products |
|
$ |
56,884 |
|
$ |
87,951 |
|
$ |
174,207 |
|
$ |
190,794 |
Number portability products |
|
|
4,427 |
|
|
9,640 |
|
|
16,515 |
|
|
18,330 |
Monitoring products |
|
|
9,216
|
|
|
6,901
|
|
|
29,667
|
|
|
27,389
|
Total product revenues |
|
|
70,527 |
|
|
104,492 |
|
|
220,389 |
|
|
236,513 |
Customer warranty services |
|
|
19,743 |
|
|
19,478 |
|
|
52,819 |
|
|
49,099 |
Professional and other services |
|
|
7,527
|
|
|
10,327
|
|
|
43,366
|
|
|
32,635
|
Total net revenues |
|
$ |
97,797
|
|
$ |
134,297
|
|
$ |
316,574
|
|
$ |
318,247
|
We conduct business in a number of foreign countries and are organized into three geographic regions. The three regions are: North
America, comprised of the United States and Canada; "EAAA," comprised of Europe and the Middle East, Asia Pacific (including China
and India), Africa and Australia; and "CALA," comprised of the Caribbean and Latin America, including Mexico. The following table sets
forth, for the periods indicated, revenues from external customers by geographic territory (in thousands):
|
|
|
Revenues from External Customers |
|
|
|
By Geographic Region |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
North America(1)
|
|
$ |
49,830 |
|
$ |
71,702 |
|
$ |
140,348 |
|
$ |
195,354 |
EAAA |
|
|
29,597 |
|
|
32,748 |
|
|
95,340 |
|
|
61,392 |
CALA |
|
|
18,370
|
|
|
29,847
|
|
|
80,886
|
|
|
61,501
|
Total revenues from external customers
|
|
$ |
97,797
|
|
$ |
134,297
|
|
$ |
316,574
|
|
$ |
318,247
|
|
|
|
(1) |
|
North America includes revenues in the United States of $48,286 and $66,675 for the three months ended September 30, 2007
and 2006, respectively, and $130,170 and $180,513 for the nine months ended September 30, 2007 and 2006, respectively. |
The following table sets forth, for the periods indicated, our long-lived assets including net property and equipment, investments in privately
held companies and other assets by geographic region (in thousands):
|
|
|
Long-Lived Assets |
|
|
|
By Geographic Region |
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2007
|
|
|
2006
|
United States |
|
$ |
49,157 |
|
$ |
43,016 |
Other |
|
|
3,345
|
|
|
3,243
|
Total long-lived assets
|
|
$ |
52,502
|
|
$ |
46,259
|
For the three months ended September 30, 2007, combined sales to the subsidiaries of Carso Global Telecom (Telefonos De Mexico and
America Telecom) represented 16% of our revenues; and sales to the T-Mobile entities, including domestic and international, represented 11% of
our revenues. For the nine months ended September 30, 2007, combined sales to the subsidiaries of Carso Global Telecom (Telefonos De Mexico
and America Telecom) represented 15% of our revenues; and sales to the merged AT&T entities (comprised of AT&T, Cingular, SBC
Communications, Inc. and others) represented 11% of our revenues. For the three months ended September 30, 2006, sales to the merged
AT&T entities and TIM Brasil S.A. represented 19% and 10% of our revenues, respectively. For the nine months ended September 30, 2006,
sales to the merged AT&T entities accounted for 19% of our revenues.
19
Note 12 — Earnings Per Share - Continuing Operations
The following table provides a reconciliation of the numerators and denominators of the basic and diluted
earnings from continuing operations per share computations for the three and nine months ended September 30, 2007 and 2006 (in thousands,
except per share amounts):
|
|
|
Income |
|
|
|
|
|
|
|
|
from |
|
|
|
|
|
|
|
|
Continuing |
|
|
|
|
|
|
|
|
Operations |
|
Shares |
|
|
Per-Share |
|
|
|
(Numerator)
|
|
(Denominator)
|
|
|
Amount
|
For the Three Months Ended September 30, 2007: |
|
|
|
|
|
|
|
|
Basic income from continuing operations per share |
|
$ |
10,059 |
|
70,830 |
|
$ |
0.14 |
Effect of Dilutive Securities |
|
|
- |
|
638 |
|
|
|
Effect of "if-converted" method applied to Convertible Notes |
|
|
581
|
|
6,361
|
|
|
|
Diluted income from continuing operations per share |
|
$ |
10,640
|
|
77,829
|
|
$ |
0.14 |
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2006: |
|
|
|
|
|
|
|
|
Basic income from continuing operations per share |
|
$ |
20,065 |
|
67,283 |
|
$ |
0.30 |
Effect of Dilutive Securities |
|
|
- |
|
770 |
|
|
|
Effect of "if-converted" method applied to Convertible Notes |
|
|
581
|
|
6,361
|
|
|
|
Diluted income from continuing operations per share |
|
$ |
20,646
|
|
74,414
|
|
$ |
0.28 |
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2007: |
|
|
|
|
|
|
|
|
Basic income from continuing operations per share |
|
$ |
16,832 |
|
69,894 |
|
$ |
0.24 |
Effect of Dilutive Securities |
|
|
- |
|
1,062 |
|
|
|
Effect of "if-converted" method applied to Convertible Notes |
|
|
-
|
|
-
|
|
|
|
Diluted income from continuing operations per share |
|
$ |
16,832
|
|
70,956
|
|
$ |
0.24 |
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2006: |
|
|
|
|
|
|
|
|
Basic income from continuing operations per share |
|
$ |
25,490 |
|
67,016 |
|
$ |
0.38 |
Effect of Dilutive Securities |
|
|
- |
|
1,147 |
|
|
|
Effect of "if-converted" method applied to Convertible Notes |
|
|
1,743
|
|
6,361
|
|
|
|
Diluted income from continuing operations per share |
|
$ |
27,233
|
|
74,524
|
|
$ |
0.37 |
The computation of diluted earnings from continuing operations per share excludes unexercised stock options, unvested restricted stock
units, and potential shares issuable upon conversion of our $125.0 million senior subordinated convertible notes that are anti-dilutive. The following
common stock equivalents were excluded from the earnings from continuing operations per share computation, as their inclusion would have been
anti-dilutive (in thousands):
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
2006
|
|
|
2007
|
|
2006
|
Weighted average number of stock options and SARs excluded |
|
|
|
|
|
|
|
|
|
|
due to the exercise price exceeding the average fair value of our |
|
|
|
|
|
|
|
|
|
|
common stock during the period |
|
|
9,757 |
|
18,167 |
|
|
11,495 |
|
17,888 |
Shares issuable upon conversion of our convertible debt |
|
|
-
|
|
-
|
|
|
6,361
|
|
-
|
Total common stock equivalents excluded from diluted net |
|
|
|
|
|
|
|
|
|
|
income from continuing operations per share computation |
|
|
9,757
|
|
18,167
|
|
|
17,856
|
|
17,888
|
There were no transactions subsequent to September 30, 2007, which, had they occurred prior to October 1,
2007, would have materially changed the number of shares in the basic or diluted earnings from continuing operations per share computations.
20
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion is designed to provide a better understanding of our unaudited condensed consolidated financial statements, including
a brief discussion of our business and products, key factors that impacted our performance, and a summary of our operating results. The following
discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in
Item 1 of this Quarterly Report on Form 10-Q, and the consolidated financial statements and notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31,
2006. Historical results and percentage relationships among any amounts in the financial statements are not necessarily indicative of trends in
operating results for any future periods.
Overview of Our Business and Products
We are a global provider of telecommunications network systems and software applications, which we design, develop, manufacture, market,
sell and support. Our applications include high performance, network-centric, mission critical applications for signaling and session control; and
complementary applications that enable service providers to better measure, manage, and monetize the communication services they provide. Our
network applications enable our customers to optimize their network efficiency and performance and to provide basic and enhanced voice and data
services to their subscribers. Our customers include traditional landline telecommunications carriers, mobile communications operators, emerging
competitive service providers and cable television service providers that offer communication services.
We derive our revenues primarily from the sale or license of telecommunications network systems and software applications and related
professional services, such as installation, training, and customer support, including customer post-warranty service contracts and our TekelecCare
extended warranty offering. Payment terms for contracts with our customers are negotiated with each customer and are based on a variety of
factors, including the customer's credit standing and our history with the customer. As we continue to expand internationally, we expect that our
payment terms may lengthen, as a higher percentage of our billing terms may be tied to the achievement of milestones and a greater number of our
customers may require performance bonds.
Our corporate headquarters are located in Morrisville, North Carolina, with research and development facilities and sales offices located
throughout the world. We sell our products and services in three geographic regions: North America, comprised of the United States and Canada;
"EAAA," comprised of Europe and the Middle East, Asia Pacific (including India and China), Africa and Australia; and "CALA,"
comprised of the Caribbean and Latin America, including Mexico.
Operating Segments
Prior to the third quarter of 2007, we were organized into two operating groups: the Network Signaling Group ("NSG") and the
Communications Software Solutions Group ("CSSG"). As discussed in Note 2 to our accompanying unaudited condensed consolidated
financial statements, on April 21, 2007 we sold our Switching Solutions Group ("SSG") business, which was previously reported as the
SSG operating segment; and on July 6, 2006 we sold our IEX business, which was previously reported as the IEX Contact Center Group operating
segment. As discussed in Note 11 to our accompanying unaudited condensed consolidated financial statements, in August 2007 we committed to a
realignment plan designed to (i) consolidate our business units, (ii) improve customer focus, (iii) accelerate decisions pertaining to product integration
and evolution, and (iv) increase our focus on delivering integrated product solutions. As a result of these organizational changes, we no longer have
multiple reportable segments as defined by the criteria of SFAS 131 and, therefore, consider ourselves to be in a single reportable segment,
specifically the development and sale of signaling telecommunications and related value-added applications and services. Prior period segment
information presented below has been adjusted to conform to our current organization.
Discontinued Operations
As further discussed in Note 2 to our accompanying unaudited condensed consolidated financial statements, during the second quarter of
2007 we sold our SSG business to Genband, and during the third quarter of 2006 we sold our IEX business to NICE Systems, Inc. These
businesses are classified as discontinued operations and their financial results are reported separately as discontinued operations for all periods
presented.
21
The following table represents the financial results of the SSG and IEX businesses included in discontinued operations (in thousands):
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
Revenues |
|
$ |
-
|
|
$ |
20,882
|
|
$ |
27,682
|
|
$ |
80,904
|
Loss from discontinued operations before |
|
|
|
|
|
|
|
|
|
|
|
|
provision for income taxes |
|
$ |
(4,569) |
|
$ |
(126,146) |
|
$ |
(42,148) |
|
$ |
(157,149) |
Benefit from income taxes |
|
|
(2,194)
|
|
|
(18,564)
|
|
|
(16,497)
|
|
|
(29,608)
|
Loss from discontinued operations, net of income taxes |
|
|
(2,375) |
|
|
(107,582) |
|
|
(25,651) |
|
|
(127,541) |
Gain (loss) on sale of discontinued operations, net of taxes |
|
|
4,819
|
|
|
-
|
|
|
(36,924)
|
|
|
-
|
Loss from discontinued operations, net of taxes |
|
$ |
2,444
|
|
$ |
(107,582)
|
|
$ |
(62,575)
|
|
$ |
(127,541)
|
Internal Controls and Corporate Governance
We consider our internal control over financial reporting a high priority and continually review all aspects and make improvements in our internal
control. Our executive management is committed to ensuring that our internal control over financial reporting is complete, effective and appropriately
documented. In the course of our evaluation of our internal control, we seek to identify material errors or control problems and to confirm that the
appropriate corrective actions, including process improvements, are being undertaken. We also seek to deal with any control matters in this
evaluation, and in each case if a problem is identified, we consider what revision, improvement or correction to make in accordance with our ongoing
procedures. Our continuing objective is to maintain our internal control as a set of dynamic systems that change (including improvements and
corrections) as conditions warrant.
In addition to striving to maintain an effective system of internal control over financial reporting, we also strive to follow the highest ethical and
professional standards in measuring and reporting our financial performance. Specifically, we have adopted a code of conduct for all of our
employees and directors that requires a high level of professionalism and ethical behavior. We believe that our accounting policies are prudent and
provide a clear view of our financial performance. We utilize our internal audit function to help ensure that we follow these accounting policies and
independently test our internal control. Further, our Disclosure Committee, composed primarily of senior financial and legal personnel, helps ensure
the completeness and accuracy of the reporting of our financial results and our other disclosures. In performing its duties, the Disclosure Committee
consults with and obtains relevant information from operations, customer service and sales personnel, including an internal certification process that
solicits responses from these functional areas. Prior to the release of our financial results, key members of our management review our operating
results and significant accounting policies and estimates with our Audit Committee, which consists solely of independent members of our Board of
Directors.
Operating Environment and Key Factors Impacting our 2007 Results
Today, most service providers operate both circuit switched and packet networks. Currently, the majority of networks which carry voice
communications rely on time division multiplexing ("TDM") circuit switching technology, and, until recently, packet switching has been
used almost exclusively for data communications. Managing multiple distinct networks in the future is not expected to be a viable economic
alternative for service providers. While circuit switching has offered reliable and high quality voice communications, packet switching is inherently
more efficient and cost effective. As a result, service providers are beginning to migrate toward a single Internet Protocol ("IP") network
architecture, or converged network, to serve as the foundation for their enhanced voice, video and data service offerings.
Convergence has a wide variety of meanings within the telecommunications industry. The term convergence encompasses (i) the convergence
of circuit and packet-based technologies to support voice services (voice transported over IP and SS7 signaling transported over IP), (ii) the
convergence of mobile networks and fixed networks and the associated flexibility of accessing networks utilizing a variety of subscriber devices, (iii)
the convergence of widely utilized information technologies with proprietary legacy telecommunications technologies, and (iv) the convergence of
basic voice and data services and enhanced multimedia services.
In the last several years, the IP Multimedia Subsystem architecture ("IMS") has emerged as an architecture well suited for converged
IP networking. Variations of the IMS architecture have been and are being adopted by various standard-setting bodies within the wireless, wireline
and cable industries. Very much like the SS7-based intelligent
22
networking architecture employed by circuit switched networks, IMS includes a
three-layer architecture: a media transport layer, a signaling and session control layer and an applications layer. However, instead of employing the SS7
protocol for signaling, IMS uses a newer signaling protocol, Session Initiation Protocol, or SIP. SIP's advantages include its ability to manage
multimedia services (voice, video and data) in an IP network, making them accessible from a wide variety of devices, such as mobile phones,
personal computers, ordinary phones and personal digital assistants, or so called "smart phones."
The transition to a converged network poses a challenge for service providers: when and how can they cost effectively transition from existing
networking technology to the converged network, without disrupting existing services and without abandoning current and recent investments in
existing networks. We believe this transition process will evolve through three phases: the current state, the transition state and the future state.
- We believe the current state includes basic voice and data services signaled with SS7 and transported over TDM-based networks.
- We believe the transition state will offer basic and enhanced voice and data services signaled with SS7, but transported over IP-based
networks. Examples of network applications many service providers are evaluating and deploying include voice services transported over IP, or
VoIP, and SS7 signaling transported over IP, or SIGTRAN.
- We believe the future state will be based upon the emerging industry consensus for IMS architectures providing enhanced multimedia service
(voice, video and data) signaled with SIP and transported over an IP-based, converged network.
While this trend is global in nature, there remain considerable differences by geography in the Public Switched Telephone Networks
("PSTN"), Public Land Mobile Networks ("PLMN") and Internet maturity, as well as in the economic opportunities that service
providers are attempting to capitalize upon. These differences generally affect the decision as to when and how service providers adopt newer
technologies and commence their transition to a converged network. As a result, we expect adoption of, and thus demand for the networking
technologies, to vary from market to market, and current state, transitional state and future state networks to overlap for a considerable period of
time. We believe that there will likely be instances of all three network states, or hybrid networks, concurrently owned and operated by a single
service provider, especially the larger providers who own networks in several markets. For example, service providers operating current state
networks in emerging markets will need to interoperate with service providers operating transitional networks and converged networks in maturing
markets. Finally, service providers must be able to measure performance, manage the quality and availability of service and monetize the newer
services in and across current, transition and future state networks.
While the transition to IMS may be occurring more slowly than originally anticipated, we believe our products and services may provide our
customers with key components to successfully migrate to IMS. Thus, we believe our expertise in network signaling, coupled with our increasing
abilities to provide our customers expanded products and services geared for a next-generation network environment, positions us to take
advantage of the opportunities presented by the migration to IMS.
Our results in 2007 have been impacted by the recent wide-spread consolidation among service providers, as they attempt to take advantage of
increased economies of scale or position themselves to offer both wireline and wireless services at reduced costs. We believe the uncertainty
generated by the recent consolidation among service providers, particularly in North America, and slower than anticipated adoption of our new
transition products are both factors that may have contributed to a shortfall in expected orders from our customers in the first half of 2007. While we
saw a significant increase in orders during the third quarter of 2007 in North America as compared to the first half of 2007, it is too early to determine
if the negative impact on our orders from this consolidation will continue or has in fact ended. In addition, orders for our monitoring products were
lower than anticipated worldwide during the first nine months of 2007 due to competitive pressures and delays in expected new product
introductions, including the delay of a new release of our Integrated Applications Software ("IAS"), IAS 2.0 until the third quarter of 2007.
We expect that orders for this product may increase as we continue successful implementations within our customer base.
23
Summary of Operating Results and Key Financial Metrics
The following is a brief summary of our performance relative to certain key financial metrics for our
continuing operations (i.e., excluding SSG and IEX) as of and for the three and nine months ended September 30, 2007 compared to the three and
nine months ended September 30, 2006 (in thousands, except earnings per share and days sales outstanding, ("DSO"):
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
Statement of operations statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
97,797 |
|
$ |
134,297 |
|
$ |
316,574 |
|
$ |
318,247 |
Orders |
|
$ |
109,166 |
|
$ |
89,402 |
|
$ |
273,043 |
|
$ |
257,642 |
Backlog |
|
$ |
346,070 |
|
$ |
376,263 |
|
$ |
346,070 |
|
$ |
376,263 |
Operating income |
|
$ |
9,728 |
|
$ |
28,265 |
|
$ |
15,006 |
|
$ |
33,835 |
Diluted earnings per share |
|
$ |
0.14 |
|
$ |
0.28 |
|
$ |
0.24 |
|
$ |
0.37 |
Cash flows from operations |
|
$ |
(19,175) |
|
$ |
(16,516) |
|
$ |
26,738 |
|
$ |
11,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
Balance sheet statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and investments |
|
|
|
|
|
|
|
$ |
431,013 |
|
$ |
424,374 |
Accounts receivable, net |
|
|
|
|
|
|
|
$ |
109,826 |
|
$ |
133,050 |
Days sales outstanding (DSO) |
|
|
|
|
|
|
|
|
79 |
|
|
60 |
Deferred revenue |
|
|
|
|
|
|
|
$ |
153,112 |
|
$ |
195,830 |
Working capital |
|
|
|
|
|
|
|
$ |
312,419 |
|
$ |
482,384 |
Shareholders' equity |
|
|
|
|
|
|
|
$ |
473,033 |
|
$ |
494,241 |
Revenues decreased by 27% to $97.8 million in the third quarter of 2007 from $134.3 million in the third quarter of 2006. The
year-over-year decrease in quarterly revenues is due principally to (i) our operating performance being unusually strong in 2006 as a result of revenue
recognized from prior periods that was deferred in the restatement process (i.e., the third quarter of 2006 was the first full quarter after implementing
new procedures, as discussed further below, in response to our restatement process and adopting the residual method of revenue recognition), and
(ii) the impact of several large orders for which revenue was recognized in the third quarter of 2006 upon delivery of a new software release in that
quarter, particularly approximately $20 million of revenue recognized from a major North American wireless carrier in the third quarter of 2006. A
significant portion of our orders originally anticipated to be recognized as revenues during the first quarter of 2006 were deferred until delivery of this
new software release in the third quarter. On a year to date basis, our revenues remained comparable, amounting to $316.6 million for the nine
months ended September 30, 2007, compared to $318.2 million for the corresponding period in 2006. While our revenues from our international
regions continue to grow as we gain market share in these markets, the decrease in the North American revenues, which we believe was due in part
to the consolidation of large service providers discussed previously, is offsetting this positive international trend and resulting in our overall revenues
remaining essentially flat on a year to date basis.
Orders increased by 22% to $109.2 million in the third quarter of 2007 from $89.4 million in the third quarter of 2006, and by 6% on a
year-to-date basis from $257.6 million in the third quarter of 2006 to $273.0 million in the third quarter of 2007. The increase in orders is primarily
due to continued expansion into international regions, particularly EAAA, where we experienced growth of 56% on a quarter-over-quarter basis and
growth of 36% on a year-over-year basis.
Backlog has declined by $30.2 million from September 30, 2006 to September 30, 2007, principally due to a continued focus on
converting backlog to revenue as quickly as possible, including the adoption of new compensation policies and new sales and delivery procedures
as discussed further below, while ensuring we meet all customer deliverables. While backlog declined on a year-over-year basis, backlog increased
by $11.4 million from June 30, 2007 as a result of strong order growth in the seasonally slower third quarter. Based on our performance in the third
quarter and our current view of orders in the fourth quarter, we are cautiously optimistic that we may continue to see modest growth in our
backlog in the fourth quarter.
24
Operating Income from Continuing Operations decreased from $28.3 million in the third quarter of 2006 to $9.7 million in the third quarter of
2007. The decrease is primarily due to a decline in revenues in the third quarter of 2007 compared to the same period in 2006, partially offset by a
reduction in our operating expenses resulting from the restructuring activities in 2006 and 2007. For the nine months ended September 30, 2007,
operating income from continuing operations decreased 56% to $15.0 million, primarily due to a lower gross profit margin resulting from (i) the shift in
the revenue mix from domestic to international markets where our revenues typically carry lower margins than sales domestically, and (ii) an
increased investment in research and development activities.
Diluted Earnings per Share from continuing operations for the three and nine months ended September 30, 2007 were impacted by the
declines in revenues and gross margins discussed above, resulting in a year-over year decline of 50% and 35%, respectively.
Operating Cash Flow from continuing operations increased to $26.7 million in the first nine months of 2007 from $11.6 million in the first
nine months of 2006, primarily as a result of continued improved collections of accounts receivable and the receipt in 2007 of net income tax refunds
of approximately $9.1 million. Partially offsetting these higher in-flows in 2007 was a higher conversion rate of deferred revenue into revenue during
the first nine months of 2007 versus the first nine months of 2006 for the reasons discussed below. Our operating cash flows for the third quarter of
each year are typically negative due to the seasonally lower orders for the quarter, along with seasonally lower billings related to renewals of our
warranty services. Operating cash flows from continuing operations decreased to an outflow of $19.2 million in the third quarter of 2007 from an
outflow of $16.5 million in the third quarter of 2006, primarily as a result of the year-over-year decline in earnings for the reasons discussed
above.
Cash, Cash Equivalents and Short-Term Investments increased during the nine months ended September 30, 2007 by
$6.6 million due primarily to (i) the improvements in operating cash flows for the nine months ended September 30, 2007 discussed
above, and (ii) proceeds from the issuance of common stock under our equity compensation plans of $29.4 million, partially offset by
payments made for share repurchases of $19.7 million, capital expenditures of $13.9 million and negative cash flows from discontinued operations of
$18.6 million.
Accounts Receivable decreased by $23.2 million during the nine months ended September 30, 2007 to $109.8 million. This
decrease was attributable in part to significant cash collections in 2007 coupled with lower billings than in the comparable periods in the prior year.
Days Sales Outstanding ("DSO") have increased to 79 days as of September 30, 2007 from 60 days as of December 31,
2006, primarily due to lower quarterly revenues relative to outstanding accounts receivable for the reasons discussed above. Upon the achievement
of certain milestones as defined in our customer contracts, we invoice our customers for deliverables according to the terms of the contract, which
often results in the recognition of a receivable prior to the recognition of revenue. As a result, a corresponding amount of deferred revenue is
recorded related to the billing. For purposes of calculating DSO, amounts included in deferred revenue related to accounts receivable are netted
against such accounts receivable.
Deferred Revenue decreased by $42.7 million, or 22%, from $195.8 million as of December 31, 2006 to
$153.1 million as of September 30, 2007, due primarily to (i) the decline in our orders and the resulting billings during the preceding two to
three quarterly periods for the reasons discussed above, and (ii) continued improvements in delivering all elements contained in our customer
contracts in a more expeditious manner.
Working Capital decreased by 35% from $482.4 million as of December 31, 2006 to $312.4 million as of September 30,
2007, primarily due to (i) the reclassification of our Convertible Debt of $125.0 million from long-term to current liabilities, as the Convertible Debt
matures in June 2008, (ii) recognition of the loss on the disposition of SSG's assets held for sale of $36.9 million (net of tax), and (iii) the $23.2
million reduction in accounts receivable discussed above, partially offset by a net increase in cash, cash equivalents and short-term investments due
to the reasons discussed above, and the $42.7 million decrease in deferred revenue noted above.
Shareholders' Equity decreased by $21.2 million in the nine months ended September 30, 2007 from $494.2 million as of
December 31, 2006 to $473.0 million as of September 30, 2007, due primarily to a net loss of $45.7 million, including the after-tax
impact of stock-based compensation, and the repurchase activity under our stock repurchase program of approximately $19.7 million. These
decreases were partially offset by (i) proceeds from the issuance of shares resulting from employee stock option exercises and our employee stock
purchase plan of $29.4 million, and (ii) increases in shareholders' equity resulting from stock-based compensation of $14.7 million,
including approximately $2.6 million of stock-based compensation expense attributable to discontinued operations.
25
Results of Operations
Because the software component of our products is more than incidental to their overall functionality, we recognize revenue under the
residual method prescribed by SOP 97-2. As a result, under arrangements with multiple product deliverables, we defer revenue recognition related
to partial shipments until all products under the arrangement are shipped and title and risk of loss have passed to the customer.
As a result of following the residual method, the majority of our revenue in any given quarter is derived from our existing backlog of orders.
While the timing of revenue recognition from receipt of an order varies from days to multiple years, on average we believe that our orders turn to
revenue within six to twelve months, depending on the product line, geographic region and the size of the order, along with whether the order is from
a new or existing customer. As a result, our near term revenue growth depends significantly on our existing backlog. Our long-term growth is more
dependent on growth in orders, or more specifically, our ability to achieve a positive book-to-bill ratio.
Prior to the second quarter of 2006, the focus of our sales, order management and contracting processes and related personnel had been on
obtaining large sales orders that, in most cases, included multiple product and/or software deliverables, which we normally delivered over multiple
quarters. Further, our customers typically placed large orders and we historically focused on customer satisfaction by making partial shipments to
meet our customers' requirements. In addition, the compensation structure under which our sales force operated was designed to support and
promote the pursuit of large orders without regard to the timing of revenue recognition under the residual method dictated by these orders.
Throughout 2006 and early 2007, we evaluated our sales and order processes, and related sales compensation plans, in order to determine how
to best align these business processes and plans with our current revenue recognition policies. As a result of our evaluation, we have implemented
several new policies and procedures, including a new sales compensation plan, in order to improve our efficiency in delivering our products to our
customers and therefore converting backlog to revenue. Despite these policy and process improvements, the timing of revenue recognition may
continue to vary significantly from quarter to quarter depending on the shipment arrangements and other terms of the orders.
Inasmuch as a majority of the costs incurred within our customer service organization are fixed and do not necessarily fluctuate directly with
revenues recognized, a decline in revenues is likely to result in a decrease in our gross margins. In addition, because a significant portion of our
operating expenses, such as research and development expenses, sales and marketing expenses, and general and administrative expenses, is
fixed and does not fluctuate proportionally with revenue recognized, the amount of such operating expenses as a percentage of revenues may vary
significantly from period to period.
Revenues
Revenues declined by 27% from $134.3 million in the third quarter of 2006 to $97.8 million in the third quarter of 2007 due primarily to lower
revenues in our North America and CALA regions. These declines were principally due to (i) our operating performance being unusually strong in
2006 as a result revenue recognized from prior periods that were deferred in the restatement process (i.e., the third quarter of 2006 was the first full
quarter after implementing new procedures, as discussed above, in response to our restatement process and adopting the residual method of
revenue recognition), and (ii) the impact of several large orders which were recognized in the third quarter of 2006 upon delivery of a new software
release in that quarter, including approximately $20 million of revenue recognized from a major North American wireless carrier. On a year-to-date
basis, our revenues decreased by 1% to $316.6 million for the nine months ended September 30, 2007, compared to $318.2 million for the
corresponding period in 2006. The decrease was primarily driven by decreases in revenues for North America, partially offset by growth in
international markets, particularly our EAAA region for the reasons discussed below.
26
Revenues by Geographical Region
The following table sets forth revenues from the three geographic regions in which we generate sales of our products: North America, EAAA,
and CALA (dollars in thousands):
|
|
|
For the Three Months Ended |
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change |
|
|
|
2007
|
|
|
2006
|
|
|
2006 to 2007
|
North America |
|
$ |
49,830 |
|
$ |
71,702 |
|
$ |
(21,872) |
|
|
(31) |
% |
EAAA |
|
|
29,597 |
|
|
32,748 |
|
|
(3,151) |
|
|
(10) |
% |
CALA |
|
|
18,370
|
|
|
29,847
|
|
|
(11,477)
|
|
|
(38) |
% |
Total revenues |
|
$ |
97,797
|
|
$ |
134,297
|
|
$ |
(36,500)
|
|
|
(27) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change |
|
|
|
2007
|
|
|
2006
|
|
|
2006 to 2007
|
North America |
|
$ |
140,348 |
|
$ |
195,354 |
|
$ |
(55,006) |
|
|
(28) |
% |
EAAA |
|
|
95,340 |
|
|
61,392 |
|
|
33,948 |
|
|
55 |
% |
CALA |
|
|
80,886
|
|
|
61,501
|
|
|
19,385
|
|
|
32
|
% |
Total revenues
|
|
$ |
316,574
|
|
$ |
318,247
|
|
$ |
(1,673)
|
|
|
(1) |
% |
As the above table indicates, our revenues declined on a year-over-year basis by 27% during the third quarter of 2007 from the same period in
2006, primarily due to declines in revenues from our North American and CALA regions. Our North American revenues decreased due primarily to
(i) the consolidation of large service providers, resulting in the delay and/or reduction in orders that typically convert to revenue in an expeditious
manner (i.e., extension orders that convert to revenue typically within the current or subsequent quarter), and (ii) the delay in the release of IAS 2.0
from the second quarter to the third quarter of 2007. Our revenues in the CALA region decreased in the third quarter of 2007 as compared to the
third quarter of 2006 primarily due to several large orders being deferred from the first half of 2006 and recognized in the third quarter of 2006 upon
completion of shipment. While our revenue in CALA during the third quarter of 2007 was lower than in the comparable period of 2006, we believe
this was primarily due to the timing of revenue recognition in the third quarter of 2006, as our revenue for the first nine months of 2007 in CALA grew
by 32% relative to the comparable period in 2006 as we focused on our expansion in the region, selling extensions on Eagle initial systems and
delivering all elements required for revenue recognition.
For the nine months ended September 30, 2007 compared to the same period in 2006, our revenues declined by 1%, primarily due to a
decrease in the North American region revenues for the reasons discussed above. This decrease was partially offset by increases in EAAA and
CALA regions of 55% and 32%, respectively. These increases were due to (i) the continued expansion of our product footprint into new customers
as service providers migrate from their legacy signaling platforms, and (ii) revenues from follow-on extension orders on systems in our international
installed base.
27
Revenue by Product Line
In order to provide a better understanding of the year-over-year changes and the underlying trends in our revenues, we have provided the
following discussion of our revenue by product line and revenue type (i.e., product, services and warranty). As discussed above, during the third
quarter we combined our NSG and CSSG business units and re-organized the associated product lines. As a result, we have modified our product
line structure and the way revenues are presented within each product line and revenue type. Accordingly, the revenues shown below have been
presented based on this realignment, with prior period presentation conformed to the current product alignment. Revenues from our principal
products and services for the three and nine months ended September 30, 2007 and 2006 are as follows (in thousands, except percentages):
|
|
|
For the Three Months Ended |
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change |
|
|
|
2007
|
|
|
2006
|
|
|
2006 to 2007
|
Product revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Eagle and other signaling products |
|
$ |
56,884 |
|
$ |
87,951 |
|
$ |
(31,067) |
|
|
(35) |
% |
Number portability products |
|
|
4,427 |
|
|
9,640 |
|
|
(5,213) |
|
|
(54) |
% |
Monitoring products |
|
|
9,216
|
|
|
6,901
|
|
|
2,315
|
|
|
34 |
% |
Total product revenues |
|
|
70,527 |
|
|
104,492 |
|
|
(33,965) |
|
|
(33) |
% |
Customer warranty services |
|
|
19,743 |
|
|
19,478 |
|
|
265 |
|
|
1 |
% |
Professional and other services |
|
|
7,527
|
|
|
10,327
|
|
|
(2,800)
|
|
|
(27) |
% |
Total revenues |
|
$ |
97,797
|
|
$ |
134,297
|
|
$ |
(36,500)
|
|
|
(27) |
% |
|
|
|
For the Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change |
|
|
|
2007
|
|
|
2006
|
|
|
2006 to 2007
|
Product revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Eagle and other signaling products |
|
$ |
174,207 |
|
$ |
190,794 |
|
$ |
(16,587) |
|
|
(9) |
% |
Number portability products |
|
|
16,515 |
|
|
18,330 |
|
|
(1,815) |
|
|
(10) |
% |
Monitoring products |
|
|
29,667
|
|
|
27,389
|
|
|
2,278
|
|
|
8 |
% |
Total product revenues |
|
|
220,389 |
|
|
236,513 |
|
|
(16,124) |
|
|
(7) |
% |
Customer warranty services |
|
|
52,819 |
|
|
49,099 |
|
|
3,720 |
|
|
8 |
% |
Professional and other services |
|
|
43,366
|
|
|
32,635
|
|
|
10,731
|
|
|
33 |
% |
Total revenues |
|
$ |
316,574
|
|
$ |
318,247
|
|
$ |
(1,673)
|
|
|
(1) |
% |
Product Revenues
Our product revenues decreased by $34.0 million, or 33%, in the third quarter of 2007 compared with the third quarter of 2006, principally
due to declines in revenues from our Eagle product line. The decrease in revenues from our Eagle product line is primarily the result of declines
within our North American region for the reasons discussed above. The decrease in number portability product revenue is due to the slowing growth
opportunities for these products in the North American and Western European markets, as we have significantly penetrated these markets in
previous periods. While we experienced a year-over-year decline in our number portability product line revenues, we expect we may see near to
mid-term growth from this product line, as more countries mandate this feature, particularly in the CALA region. Monitoring revenues increased by
34% on a year-over-year basis during the third quarter of 2007 as we continue to successfully leverage our installed Eagle customer base.
Our product revenues decreased by $16.1 million, or 7%, in the first nine months of 2007 compared with the first nine months of 2006,
primarily due to the declines in our Eagle product line, particularly within the North American and CALA regions. While our Eagle revenues declined
in aggregate during the nine months ended September 30, 2007, we are beginning to see growth of revenues from Eagle upgrades and extension
orders, particularly in the EAAA and CALA regions. While these results are not conclusive, we anticipate that our strategy of expanding our footprint
internationally with lower margin sales of Eagle initial systems will begin to generate higher margins as these same customers purchase follow-on
Eagle extension products, as well as our number portability and monitoring products.
28
While we experienced modest growth in our monitoring product revenues for the nine months ended September 30, 2007 relative to the
same period in 2006, we were disappointed with the growth in revenues from this product line during the 2007 period. We believe that the decline in
the growth rate of orders and related revenue from this product line was negatively impacted worldwide by competitive pressures, particularly in the
international markets, and delays in our new product introductions, particularly the delay of releasing IAS 2.0, which disproportionately impacted
North America. As a result of the release of IAS 2.0 in the third quarter and the realignment of the business units discussed previously, we believe
that we are positioning ourselves to improve the growth rates of this product line.
Domestically, our product revenues are impacted by a variety of factors, including (i) industry consolidation resulting in delay and/or decline
in our customer orders, (ii) the introduction of new technologies, such as SigTran, at significantly lower price points than existing technologies,
resulting in reductions in our order value, revenues and gross margins, and (iii) the amount of signaling traffic generated on our customers' networks,
impacting our volume of orders. We derive the majority of product revenues in North America from wireless operators, and wireless networks
generate significantly more signaling traffic than wireline networks. As a result, these networks require significantly more signaling infrastructure.
Signaling traffic on our wireless customers' networks may be impacted by several factors, including growth in the number of subscribers, the number
of calls made per subscriber, roaming, and the use of additional features, such as text messaging.
Internationally, in addition to depending on the factors affecting our domestic sales growth described above, our product revenue growth
depends on our ability to successfully penetrate new international markets, which often involves displacing an incumbent signaling vendor and our
ongoing ability to meet the signaling requirements of the newly acquired customers. As indicated previously, we have experienced significant growth
in our international revenues and as much of this growth is derived from sales of Eagle initial systems, we believe that we are building a base for
future revenues from our higher margin extension and number portability products.
Warranty Services Revenues
Warranty services include our (i) standard warranty coverage, which is typically provided at no charge for the first year but is allocated a
portion of the arrangement fee in accordance with SOP 97-2, and (ii) our extended warranty offerings. After the first year warranty, our customers
typically prepay warranty services for periods up to a year, which we reflect in deferred revenues. We recognize the revenue associated with our
warranty services ratably over the term of the warranty arrangement based on the number of days the contract is outstanding during the period. For
the three and nine months ended September 30, 2007, warranty services revenue increased by 1% and 8% as compared to the three and nine
months ended September 30, 2006, respectively. These increases are due primarily to the increase in our installed base of customers receiving
warranty services.
The timing of recognition of our warranty revenue may be impacted by, among other factors (i) delays in receiving purchase orders from our
customers, (ii) the inability to recognize any revenue, including revenue associated with first year warranty, until the delivery of all product
deliverables associated with an order is complete, and (iii) receipt of cash payments from the customer in cases where the customer is deemed a
credit risk.
Professional Services Revenues
Professional services revenues primarily consist of installation services, database migration and training services. Substantially all of our
professional service arrangements are billed on a fixed-fee basis. We typically recognize the revenue related to our fixed-fee service arrangements
upon completion of the services, as these services are relatively short-term in nature (i.e., typically a matter of days or, in limited cases, several
weeks). Our professional services are typically initiated and provided to the customer within a three to six month period after the shipment of the
product, with the timing depending on, among other factors, the customer schedule and site availability. As a result, our professional services
revenues depend in large part on the timing of shipments and related product revenue recognized in the immediately preceding periods, particularly
shipments of Eagle initial systems and shipments to new customers, both of which typically require a higher percentage of professional
services.
29
For the three months ended September 30, 2007, professional services revenues declined on a year-over-year basis by 27% relative to the
comparable period in 2006, primarily due to the decline in Eagle revenue, particularly revenue from initial systems, in the 2007 quarter and first nine
months of 2007. As discussed above, Eagle initial systems require greater installation and database migration services than our other products.
For the nine months ended September 30, 2007, professional services revenue increased by 33% as compared to the same period in 2006,
primarily due to (i) the shift in our revenues towards international markets where we have continued to acquire new customers, and (ii) the
installation, data migration and training services delivered in 2007 associated with Eagle initial systems shipped in late 2006. Specifically, 56% of
our total revenues were derived from international markets during the nine months ended September 30, 2007 compared to 38% during the same
period during 2006. Regardless of the mix of products purchased (e.g., initial or extension Eagle systems), our international customers require a
greater amount of installation, training and other professional services at the initial stages of deployment of our products, as they are not familiar with
the operation of our products. As our customers gain more knowledge of our products, the follow-on orders generally do not require the same levels
of services and training, as our customers tend to either (i) perform the services themselves, (ii) require limited services, such as installation only, or
(iii) require no services, in particular no database migration or training services.
This is particularly evident in comparing the growth in these revenues during the first nine months of 2007 to the comparable period in 2006.
During 2006, our revenues included a significantly higher mix of initial systems, which typically require more installation and professional services,
but because these products were sold primarily within our North American installed customer base, the arrangements did not require a significant
amount of professional services and training during 2006. In 2007, a higher percentage of these Eagle initial systems was from new or relatively
new customers in international markets, resulting in significantly higher sales of our service offerings, despite the decline in revenues from Eagle
initial systems on a year-over-year basis.
In addition to the shift in revenues to international markets favorably impacting our professional services revenues, the three to six month
lag in providing these services to our customers also contributed to this growth. As a result of the significant amount of Eagle initial systems
delivered in 2006, we were able to grow our professional services revenues as we completed the associated installation, data migration and training
services in 2007.
Deferred Revenues, Orders and Backlog
As previously discussed, in situations where we sell multiple products or sell a combination of integrated products and services
that we cannot separate into multiple elements, we defer revenue recognition until all product shipments are complete and until services essential to
the functionality of the product are fulfilled, due to the fact that we follow the residual method of accounting as prescribed by SOP 97-2. Deferred
revenue as of September 30, 2007 decreased by $42.7 million, or 22%, from $195.8 million as of December 31, 2006 to
$153.1 million as of September 30, 2007. As o f September 30, 2007, we had a backlog of orders totaling $346.1 million, down from $389.6
million as of December 31, 2006.
Backlog and deferred revenue decreased from December 31, 2006 primarily due to our continued focus on implementing improved project
management and new business practices to convert our backlog to revenue in a more expeditious and systematic manner, coupled with lower than
expected order intake in 2007. While orders were lower than expected for the nine months ended September 30, 2007, orders were stronger than
expected in the seasonally slower third quarter of 2007, with a sequential increase of $24.5 million, or 29%, over the second quarter of 2007.
Further, on a year-over-year basis, orders increased by $19.8 million, or 22%, and $15.4 million, or 6%, to $109.2 million and $273.0 million during
the three and nine months ended September 30, 2007, respectively, from $89.4 million and $257.6 million in the three and nine months ended
September 30, 2006, respectively. The year-over-year increase in 2007 was driven by a significant growth in orders coming from the EAAA and
CALA regions, primarily as a result of our winning new orders as service providers migrate from their legacy signaling platforms to next generation
networks. Based on a current review of our existing sales pipeline, as well as our expectations regarding the overall consolidation and
developments in the telecommunications industry, we believe that our 2007 orders will be comparable to our 2006 orders.
We establish our expenditure levels based on our expectations as to future sales orders and shipments and the timing of when these orders will
turn to revenue. Should these sales orders and shipments and the related timing of revenue recognition fall below our expectations, then such
shortfall would cause expenses to be disproportionately high in relation to revenues. Therefore, a drop in near-term demand or the inability to ship an
order in its entirety
30
could significantly affect revenues and margins, causing a disproportionate reduction in profits or even resulting in losses for any given quarter or year.
Cost of Sales
In order to better understand our cost structure, we analyze and present our costs and expenses in the categories discussed below:
Cost of goods sold
Cost of goods sold includes (i) materials, labor, and overhead costs incurred internally and paid to contract manufacturers to produce our
products, (ii) personnel and other implementation costs incurred to install our products, and (iii) customer service costs to provide
continuing support to our customers under our warranty offerings. Cost of goods sold in dollars and as a percentage of revenues for the three and
nine months ended September 30, 2007 and 2006 were as follows (in thousands, except percentages):
|
|
|
For the Three Months Ended |
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change |
|
|
|
2007
|
|
|
2006
|
|
|
2006 to 2007
|
Cost of goods sold |
|
$ |
33,367 |
|
$ |
49,274 |
|
$ |
(15,907) |
|
|
(32) |
% |
Revenues |
|
|
97,797 |
|
|
134,297 |
|
|
(36,500) |
|
|
(27) |
% |
Cost of goods sold as a percentage of revenues |
|
|
34 |
% |
|
37 |
% |
|
|
|
|
|
|
|
|
|
For the Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change |
|
|
|
2007
|
|
|
2006
|
|
|
2006 to 2007
|
Cost of good sold |
|
$ |
132,043 |
|
$ |
119,296 |
|
$ |
12,747 |
|
|
11 |
% |
Revenues |
|
|
316,574 |
|
|
318,247 |
|
|
(1,673) |
|
|
(1) |
% |
Cost of good sold as a percentage of revenues |
|
|
42 |
% |
|
37 |
% |
|
|
|
|
|
|
Cost of goods sold decreased by 32% in the three months ended September 30, 2007 as compared to the same period in 2006 due primarily to
the lower revenues for the period. Gross margins remained fairly consistent for the two quarterly periods, with 2007 showing a slight improvement
over 2006, primarily due to lower customer service costs and a larger portion of revenue coming from the higher margin extensions business. As
discussed further below, over the past few years we have expanded our product footprint with sales of Eagle initial systems, which typically carry
lower margins but provide the potential for follow on, higher margin extensions sales. We believe we are beginning to see the benefits of our
extended product footprint with increases in revenues from extensions, particularly within our CALA region.
For the nine months ended September 30, 2007, cost of goods sold increased by $12.7 million, or 11%, due primarily to a continuing shift in our
revenue mix from our higher margin North American sales to our lower margin international sales. Specifically, international revenues were 56% of
total revenues in the nine months ended September 30, 2007, compared to 39% of total revenues for the same period in 2006. Our costs to deliver
internationally are higher as a result of longer installation times, higher costs for shipping and importing and increased travel for our North America
based customer service team.
Also, on the year to date basis, our margins were negatively affected by the completion of three low margin contracts that were recognized
during the second quarter of 2007. During late 2005 and early 2006, we determined that we had certain contracts in which our costs to deliver would
exceed the related revenues under the terms of these contracts and, accordingly, we accrued the loss at the time of this determination. As a result,
we expected the margin to be at or near 0% on these contracts once they were completed and the associated revenue was recognized. In addition
to these "loss" contracts, we had entered into another contract at a very low margin in late 2003. We entered into each of these contracts
in anticipation of future extension business with the customer and in order to expand our product footprint in new geographical areas. During the
nine months ended September 30, 2007 we completed three of these four contracts, representing revenues of $17.1 million and a gross margin of
$5.2 million. We performed better than we had anticipated in completing these contracts, resulting in the gross margins being higher than originally
estimated. As a result of recognizing these lower margin contracts in this period, cost of goods sold as a
31
percentage of revenues increased compared
to the same period in 2006. As of September 30, 2007, we have one contract remaining with total revenues of $1.9 million that we have
determined to be a loss contract, and we currently expect to complete this project in late 2007 or early 2008.
As we continue to expand our international presence, our cost of goods sold as a percentage of revenues may be negatively impacted as the
result of our decision to develop new sales channels and customer relationships in these new markets, and also due to price competition. Sales of
Eagle initial systems in international markets typically carry lower margins than both sales domestically and sales of extensions, and to the extent our
sales internationally increase at a rate greater than sales within North America, cost of goods sold as a percentage of revenues is also likely to
increase. Specifically, many of our recent orders in our EAAA region have represented orders of Eagle initial systems from new customers at lower
margins than our existing installed base. As these orders convert to revenue, our margins may decline if not offset by new orders of our higher
margin extensions. In addition, changes in the following factors may also affect margins: product mix; competition; customer discounts; supply and
demand conditions in the electronic components industry; internal and outsourced manufacturing capabilities and efficiencies; foreign currency
fluctuations; pricing pressure as we expand internationally; and general economic conditions.
Amortization of Purchased Technology
Amortization of purchased technology for the three and nine months ended September 30, 2007 and 2006 was as follows (in thousands):
|
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
Amortization of purchased technology related to: |
|
|
|
|
|
|
|
|
|
|
|
|
iptelorg |
|
$ |
105 |
|
$ |
104 |
|
$ |
320 |
|
$ |
314 |
Steleus |
|
|
482
|
|
|
482
|
|
|
1,446
|
|
|
1,446
|
Total |
|
$ |
587
|
|
$ |
586
|
|
$ |
1,766
|
|
$ |
1,760
|
Research and Development Expenses
Research and development expenses include costs associated with the development of new products, enhancements of existing products and
quality assurance activities. These costs consist primarily of employee salaries and benefits, occupancy costs, outsourced development costs and
the cost of development equipment and supplies. The following sets forth our research and development expenses in dollars and as a percentage of
revenues for the three and nine months ended September 30, 2007 and 2006 (in thousands, except percentages):
|
|
|
For the Three Months Ended |
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change |
|
|
|
2007
|
|
|
2006
|
|
|
2006 to 2007
|
Research and development |
|
$ |
22,762 |
|
$ |
20,838 |
|
$ |
1,924 |
|
|
9 |
% |
Percentage of revenues |
|
|
23 |
% |
|
16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change |
|
|
|
2007
|
|
|
2006
|
|
|
2006 to 2007
|
Research and development |
|
$ |
69,033 |
|
$ |
57,940 |
|
$ |
11,093 |
|
|
19 |
% |
Percentage of revenues
|
|
|
22 |
% |
|
18 |
% |
|
|
|
|
|
|
As the above table indicates, we have increased our investment in research and development activities in 2007, with year-over-year
increases of 9% and 19% during the three and nine months ended September 30, 2007, respectively. This increase is due primarily to our continued
investments in developing transitional products to help our customers deal with network interoperability and protocol mediation issues and help them
migrate to next generation networks. In addition, our success in winning new Eagle customers outside North America this year has required a
significant investment in International Telephone Union ("ITU") compliant feature development to respond to market requirements in
EAAA and CALA. We believe that our future success depends in a large part upon our ability to continue enhancing existing products and to develop
or acquire new products that maintain our technological competitiveness.
32
In order to provide additional clarity as to the areas in which we have increased our investment in research and development, the following
is a summary of the year-over-year fluctuations in our research and development expenses
during the three and nine months ended September 30, 2007 as compared to the three and nine months ended September 30, 2006 (in
thousands):
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2006 to 2007
|
|
|
2006 to 2007
|
Increase (decrease) in: |
|
|
|
|
|
|
Salaries and benefits |
|
$ |
(197) |
|
$ |
780 |
Incentive compensation |
|
|
535 |
|
|
1,492 |
Stock-based compensation |
|
|
(721) |
|
|
(1,620) |
Consulting and professional services |
|
|
792 |
|
|
5,224 |
Facilities and depreciation |
|
|
1,626 |
|
|
4,462 |
Other |
|
|
(111)
|
|
|
755
|
Total |
|
$ |
1,924
|
|
$ |
11,093
|
The increase in consulting and professional services reflects our continued outsourcing efforts for new product development and upgrade of
existing technologies as we continue to seek global relationships aimed at more cost effective product development.
The year to date increase in salaries and benefits and incentive compensation included in research and development expenses also reflects
increased investment in key internal resources. This increase is partially offset by a decrease in stock-based compensation expense resulting from
changes in our stock-based compensation programs. Specifically, among other measures implemented in early 2006, we reduced grant sizes and
began utilizing stock-settled stock appreciation rights or restricted stock units rather than stock options in an effort to reduce option overhang (the
number of options outstanding relative to the number of common stock shares outstanding) and stock-based compensation expense. Additionally,
facilities and depreciation costs included in research and development expenses increased in 2007 due primarily to the expansion of space within
our corporate headquarters dedicated to research and development activities, along with additional depreciation related to equipment acquired to
support our research and development efforts.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of costs associated with our sales force and marketing personnel, including (i) salaries,
commissions and related costs, (ii) outside contract personnel costs, (iii) facilities costs, and (iv) travel and other costs. The following table sets forth
our sales and marketing expenses in dollars and as a percentage of revenues for the three and nine months ended September 30, 2007 and 2006
(in thousands, except percentages):
|
|
|
For the Three Months Ended |
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change |
|
|
|
2007
|
|
|
2006
|
|
|
2006 to 2007
|
Sales and marketing expenses |
|
$ |
16,662 |
|
$ |
18,706 |
|
$ |
(2,044) |
|
|
(11) |
% |
Percentage of revenues |
|
|
17 |
% |
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change |
|
|
|
2007
|
|
|
2006
|
|
|
2006 to 2007
|
Sales and marketing expenses |
|
$ |
53,636 |
|
$ |
55,643 |
|
$ |
(2,007) |
|
|
(4) |
% |
Percentage of revenues
|
|
|
17 |
% |
|
17 |
% |
|
|
|
|
|
|
33
The following is a summary of the year-over-year fluctuation in our sales and marketing expenses during the three and nine months ended
September 30, 2007 as compared to the three and nine months ended September 30, 2006 (in thousands):
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2006 to 2007
|
|
|
2006 to 2007
|
Increase (decrease) in: |
|
|
|
|
|
|
Salaries and benefits |
|
$ |
252 |
|
$ |
48 |
Sales commissions |
|
|
(206) |
|
|
1,588 |
Incentive compensation |
|
|
(99) |
|
|
363 |
Stock-based compensation |
|
|
(415) |
|
|
(1,363) |
Marketing and advertising |
|
|
(1,310) |
|
|
(2,317) |
Other |
|
|
(266)
|
|
|
(326)
|
Total |
|
$ |
(2,044)
|
|
$ |
(2,007)
|
The decrease in sales and marketing expenses in the third quarter of 2007 compared to the third quarter of 2006 was primarily attributable to the
decrease in advertising, mainly due to the overall reductions in marketing communications, promotion and advertising related activities. Sales
commission and incentive compensation expenses were also lower in 2007 due primarily to the lower revenues and gross margin in the quarter.
Stock-based compensation expense decreased during the third quarter of 2007 as a result of changes in our stock-based compensation programs
discussed above.
For the nine months of 2007, sales commissions and incentive compensation expense increased as compared to the same period of 2006,
primarily due to certain 2007 orders earning higher commission rates, and the achievement of the performance levels for the first half of 2007
required to earn incentive compensation. Offsetting these increases were lower stock-based compensation, and marketing and advertising related
activities due efforts to better align our cost structure with our continuing operations.
General and Administrative Expenses
General and administrative expenses are composed primarily of costs associated with our executive and administrative personnel (e.g., legal,
business development, finance, information technology and human resources personnel) and consist of (i) salaries and related compensation
costs, (ii) consulting and other professional services (e.g., litigation and other outside counsel fees, audit fees and costs associated with compliance
with the Sarbanes-Oxley Act of 2002), (iii) facilities and insurance costs, and (iv) travel and other costs. The following table sets forth
our general and administrative expenses in dollars and as a percentage of revenues for the three and nine months ended September 30, 2007 and
2006 (in thousands, except percentages):
|
|
|
For the Three Months Ended |
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change |
|
|
|
2007
|
|
|
2006
|
|
|
2006 to 2007
|
General and administrative expenses |
|
$ |
12,354 |
|
$ |
16,180 |
|
$ |
(3,826) |
|
|
(24) |
% |
Percentage of revenues |
|
|
13 |
% |
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change |
|
|
|
2007
|
|
|
2006
|
|
|
2006 to 2007
|
General and administrative expenses |
|
$ |
40,148 |
|
$ |
46,299 |
|
$ |
(6,151) |
|
|
(13) |
% |
Percentage of revenues
|
|
|
13 |
% |
|
15 |
% |
|
|
|
|
|
|
34
The following is a summary of the year-over-year fluctuation in our general and administrative expenses during the three and nine months ended
September 30, 2007 as compared to the three and nine months ended September 30, 2006 (in thousands):
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2006 to 2007
|
|
|
2006 to 2007
|
Increase (decrease) in: |
|
|
|
|
|
|
Salaries and benefits |
|
$ |
(1,035) |
|
$ |
(967) |
Incentive compensation |
|
|
(43) |
|
|
(132) |
Stock-based compensation |
|
|
(432) |
|
|
314 |
Consulting and professional services |
|
|
(371) |
|
|
(504) |
Facilities and depreciation |
|
|
(673) |
|
|
(2,806) |
Provision for bad debt |
|
|
(1,227) |
|
|
(547) |
Other |
|
|
(45)
|
|
|
(1,509)
|
Total |
|
$ |
(3,826)
|
|
$ |
(6,151)
|
The decrease in general and administrative expenses on a year-over-year basis during the third quarter of 2007 was primarily driven by a
decrease in employee-related expenses, such as salaries and benefits, incentive compensation, and stock-based compensation, resulting from a
decrease in the number of general and administrative personnel. We reduced the number of personnel within our general and administrative
department in order to better align our cost structure with our expectations regarding our continuing operations. The decrease in bad debt expense
in 2007 as compared to 2006 is due primarily to an improvement in our collections of and associated aging of our accounts receivable, as well as
recovery of certain receivables provided for in earlier periods. Facilities and depreciation costs declined as a result of the reduction in personnel and
outside contractors, coupled with the consolidation of our general and administrative personnel into reduced space.
General and administrative costs decreased on a year-over-year basis during the nine months ended September 30, 2007 primarily as a result
of the reductions in salaries and benefits, incentive compensation, facilities and depreciation, and bad debt expense for the reasons discussed
above. Other expense, which includes employee-related costs such as travel, communications, and recruiting, decreased by approximately $1.0
million on a year-over-year basis due to declines in recruiting-related expenses, travel and other expenses indirectly associated with employee
headcount as a result of reductions in general and administrative personnel. Also included in general and administrative expenses during the nine
months ended September 30, 2007 were approximately $1.9 million of one-time expense reductions incurred in the first quarter related to (i)
reimbursement of $0.9 million of legal fees incurred during 2006 in connection with a dispute over a previously leased facility (included in
"consulting and professional services" in the above table), (ii) reimbursement of $0.5 million of certain taxes previously recorded in 2006
(included in "other" in the above table), and (iii) certain other one-time cost reductions estimated at $0.5 million (included in
"facilities and depreciation" in the above table). Partially offsetting these decreases was an increase in stock-based compensation
associated with additional grants of equity to our general and administrative employees. We intend to continue focusing on improving the efficiency
of our operations by examining the way in which we operate in order to identify opportunities for cost reductions.
Amortization of Intangible Assets
As a result of our acquisitions, we have recorded various intangible assets including trademarks, customer
relationships and non-compete agreements. Amortization of intangible assets related to our acquisitions is as follows (in thousands):
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
iptelorg |
|
$ |
20 |
|
$ |
23 |
|
$ |
62 |
|
$ |
93 |
Steleus |
|
|
26
|
|
|
437
|
|
|
78
|
|
|
1,311
|
Total
|
|
$ |
46
|
|
$ |
460
|
|
$ |
140
|
|
$ |
1,404
|
The year-over-year decrease in amortization expense is due principally to certain intangible assets associated with our acquisition of Steleus
becoming fully amortized in 2006.
35
Restructuring and Other Costs
During the third quarter of 2007 we initiated an organizational realignment (the "2007 Realignment") designed to (i) consolidate our
business units, (ii) improve customer focus, (iii) accelerate decisions pertaining to product integration and evolution, and (iv) increase our focus on
delivering integrated product solutions. As a result of the 2007 Realignment, five senior employees have exited the Company or will exit the
Company upon completion of their transitional roles designed to facilitate the integration of our former business units. In connection with these
events, we incurred a charge of $1.9 million related to employee severance and associated benefits and $0.3 million related to direct costs
associated with transition activities which consisted primarily of salaries and related benefits. We expect to realize approximately $2.0 million in
annual savings as a result of the 2007 Realignment. We continue to evaluate additional synergies associated with combining our business units and
may incur additional charges in the remainder of 2007 as part of this organizational realignment.
In June 2007, we initiated a restructuring of our operations (the "2007 Restructuring") in order to better align our organizational
structure with our anticipated future revenues and the anticipated administrative support needs of our business following the sale of our SSG
business. We completed this restructuring in July 2007. In connection with this restructuring, we terminated 33 domestic and international positions
and incurred $0.1 million and $2.6 million of restructuring costs, consisting mostly of employee severance and associated benefits costs, for the
three and nine months ended September 30, 2007, respectively. These costs are reflected in continuing operations in the accompanying unaudited
condensed consolidated statements of operations. We expect to realize approximately $4.0 million to $5.0 million in annual savings as a result of
the 2007 Restructuring.
In connection with the disposition of our SSG business and related restructuring (the "SSG Restructuring") discussed in Note 2 to the
accompanying unaudited condensed consolidated financial statements, we incurred $21.2 million of restructuring costs, consisting primarily of
employee severance and associated benefit costs in the first half of 2007. The SSG Restructuring involved the termination of approximately 165
full-time positions that directly or indirectly supported our SSG business unit. These costs are reflected in discontinued operations in the accompanying
unaudited condensed consolidated statements of operations. Based on current information and assumptions, we do not expect to incur additional
restructuring charges associated with our disposition of SSG.
We may incur additional charges or reduce the above restructuring charges should actual events differ from our assumptions.
Other Income and Expense
For the three and nine months ended September 30, 2007 and 2006, other income and expenses were as
follows (in thousands, except percentages):
|
|
|
For the Three Months Ended |
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change |
|
|
|
|
2007
|
|
|
2006
|
|
|
2006 to 2007
|
|
Interest income |
|
$ |
4,411 |
|
$ |
3,554 |
|
$ |
857 |
|
|
24 |
% |
Interest expense |
|
|
(903) |
|
|
(1,000) |
|
|
97 |
|
|
(10) |
% |
Other, net |
|
|
(1,144)
|
|
|
(496)
|
|
|
(648)
|
|
|
131 |
% |
Other income (expense), net |
|
$ |
2,364
|
|
$ |
2,058
|
|
$ |
306
|
|
|
15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change |
|
|
|
|
2007
|
|
|
2006
|
|
|
2006 to 2007
|
|
Interest income |
|
$ |
12,706 |
|
$ |
7,081 |
|
$ |
5,625 |
|
|
79 |
% |
Interest expense |
|
|
(2,754) |
|
|
(2,781) |
|
|
27 |
|
|
(1) |
% |
Gain on sale of investments |
|
|
223 |
|
|
1,793 |
|
|
(1,570) |
|
|
(88) |
% |
Other, net |
|
|
(2,988)
|
|
|
(847)
|
|
|
(2,141)
|
|
|
253 |
% |
Other income (expense), net
|
|
$ |
7,187
|
|
$ |
5,246
|
|
$ |
1,941
|
|
|
37 |
% |
36
Interest Income and Expense. Interest income increased during the three and nine months ended September 30, 2007 compared to the
three and nine months ended September 30, 2006 due to higher average cash and short-term investment balances and higher interest rates in 2007
compared to the comparable periods in 2006.
Gain (loss) on Investments. The decrease in gain on investments during the nine months ended September 30, 2007 compared to
the nine months ended September 30, 2006 is due to a one-time gain on the release of escrowed Alcatel-Lucent shares in the first quarter of 2006.
Other, net. Other, net for the three and nine months ended September 30, 2007 and 2006 consists primarily of foreign currency exchange
losses, net of gains, and forward points on foreign currency forward contracts used to hedge our exposure to foreign currency risks and translation
adjustments from consolidating our international subsidiaries. For the three months ended September 30, 2007, the strengthening of the Euro and
the Brazilian Real relative to the U.S. Dollar unfavorably impacted the remeasurement of our European and Brazilian subsidiaries as compared to
the same period in 2006. In the nine months ended September 30, 2007, the Brazilian Real strengthened against the U.S. dollar, which unfavorably
impacted the remeasurement of our Brazilian subsidiary, resulting in an increase in non-cash foreign currency losses for the nine months ended
September 30, 2007 compared to the same periods in 2006. As we expand our international business further, we will continue to enter into a greater
number of transactions denominated in currencies other than the U.S. Dollar and will therefore be exposed to greater risk related to foreign currency
fluctuations and translation adjustments. We continue to explore ways to minimize our exposure in this area.
Provision for Income Taxes
The income tax provision on continuing operations for the three months ended September 30, 2007 and 2006 was approximately $2.0 million
and $10.3 million, respectively. The effective tax rates on continuing operations for the three months ended September 30, 2007 and 2006 were
17% and 34%, respectively. The effective tax rate for the three months ended September 30, 2007 differs from the statutory rate of 35%, and from
the effective tax rate for the three months ended September 30, 2006, primarily due to (i) a significant portion of our pretax income being derived
from tax-exempt interest generated from our investment portfolio, and (ii) certain discrete income tax benefits recorded during the third quarter of
2007.
The income tax provision on continuing operations for the nine months ended September 30, 2007 and 2006 was approximately $5.4 million
and $13.6 million, respectively. The effective tax rates on continuing operations for the nine months ended September 30, 2007 and 2006 were 24%
and 35%, respectively. The effective tax rate decreased on a year-over-year basis due primarily to increases in the tax benefits recognized related
to tax-exempt interest generated from our investment portfolio.
Primarily as the result of the disposition of SSG, a significant number of options expired unexercised during 2007, resulting in a significant
reduction in our "pool of windfall tax benefits" under SFAS 123R "Share-Based Payment" ("SFAS 123R").
Specifically, our pool of windfall tax benefits has decreased to approximately $0.7 million as of September 30, 2007. To the extent that we fully
utilize this pool, future cancellations or exercises that result in a tax deduction that is less than the related deferred tax asset recognized under SFAS
123R will negatively impact our future effective tax rate and increase its volatility.
On January 1, 2007, we adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes," an interpretation of FASB Statement No. 109, "Accounting for Income Taxes"
("FIN 48"). Upon of the adoption of FIN 48, we did not record an adjustment to the balance of retained earnings as of January 1, 2007.
As of January 1 and September 30, 2007, the total amount of unrecognized income tax benefits was $12.1 million and $14.1 million, (including
interest and penalties), respectively. A change in estimate relating to any of these unrecognized tax benefits could have a material impact on our
effective tax rate.
Liquidity and Capital Resources
Overview
We derive our internal liquidity and capital resources primarily from our cash flows from operations and from our working capital. Our working
capital decreased by 35% from $482.4 million as of December 31, 2006 to $312.4 million as of September 30, 2007, primarily due to (i)
the reclassification of our Convertible Debt of $125.0 million, which matures in June 2008, from long-term to current liabilities, and (ii) recognizing the
loss on the disposition of SSG's assets held for sale of $36.9 million (net of tax), partially offset by a net increase in cash, cash equivalents and
37
short-term investments. With our working capital position, we believe that we have the flexibility to continue to invest in further development of our
technology and, when necessary or appropriate, make selective acquisitions to continue to strengthen our product portfolio.
The principal components of our working capital are liquid assets such as cash and cash equivalents, short-term investments and accounts
receivable, reduced by trade accounts payable, accrued expenses, accrued payroll and related expenses and the current portion of deferred
revenues.
Our cash, cash equivalents and short-term investments were $431.0 million and $424.4 million as of September 30, 2007 and
December 31, 2006, respectively. In addition, as of September 30, 2007, we had a $30.0 million line of credit collateralized by a
pledged investment account held with an intermediary financial institution. As of September 30, 2007, there were no outstanding borrowings under
this facility; however, we had utilized approximately $1.5 million of the facility to secure letters of credit.
As of September 30, 2007, our short-term investments generally had investment grade ratings and any such investments that were in an
unrealized loss position at September 30, 2007 were in such position solely due to interest rate changes, sector credit rating changes or
company-specific rating changes. As we intend and believe that we have the ability to hold such investments for a period of time that will be sufficient for
anticipated recovery in market value, we currently expect to receive the full principal or recover our cost basis on these securities. When evaluating
our investments for possible impairment, we review factors such as the length of time and extent to which fair value has been below our cost basis,
the financial condition of the investee, and our ability and intent to hold the investment until maturity, if a debt security, or for a period of time which
may be sufficient for anticipated recovery in market value. The declines in our securities are considered to be temporary in nature and, accordingly,
we do not believe these securities are impaired as of September 30, 2007.
In addition to our normal operating cash requirements as discussed above, we currently expect to repay our $125.0 million Convertible Debt in
June 2008 from our working capital, if the debt is not converted to common stock at the option of the holders prior to such repayment.
In August 2007, our Board of Directors approved a stock repurchase program that authorized the repurchase of up to $50.0 million of our
common stock, which we are funding from available working capital. Under this program, approximately 1.6 million shares have been repurchased
as of September 30, 2007, for approximately $19.7 million. The pace of our stock repurchase activity depends on several factors such as our
working capital needs, our stock price, regulatory requirements, and other economic and market conditions. Our stock repurchase program may be
terminated at any time. In addition to the stock repurchases made under this program, we may authorize further repurchases of our stock in the
future.
We believe our current working capital and anticipated cash flows from operations will be adequate to meet our cash needs for our daily
operations and capital expenditures for at least the next 12 months. Our liquidity, however, could be negatively impacted if revenues decrease
due to (i) a decline in demand for our products, (ii) a reduction of capital expenditures by our customers as a result of a downturn in the global
economy, (iii) potential future investment decisions by us, (iv) settlements or judgments in future potential litigation, and (v) other factors.
Cash Flows
As discussed above, one of the primary sources of our liquidity is our ability to generate positive cash flows from operations. The following is a
discussion of our primary sources and uses of cash in our operating, investing and financing activities:
Cash Flows from Operating Activities
Net cash provided by operating activities of continuing operations was $26.7 million and $11.6 million for the nine months ended September 30,
2007 and 2006, respectively. Our cash flows from continuing operations were primarily derived from (i) our earnings from
ongoing operations prior to non-cash expenses such as depreciation, amortization, bad debt, write-downs of inventory, stock based compensation,
and non-cash impairment charges, (ii) the tax benefit related to the exercise of employee stock options, which reduces our cash outlay for
income tax expense, and (iii) changes in our working capital for the reasons discussed previously, which are primarily composed of changes in
accounts receivable, inventories, deferred revenue and associated deferred costs, accounts payable, accrued expenses and accrued payroll and
related expenses.
38
We currently anticipate that we will generate positive cash flow from continuing operations for 2007. Our ability to meet this expectation depends
on our ability to achieve positive earnings. Our ability to generate future cash flows from operations could be negatively impacted by (i) a decrease in
demand for our products, which are subject to technological changes and increasing competition, or a reduction of capital expenditures by our
customers as a result of a downturn in the global economy, and (ii) a continued shift of our revenues from international customers, which typically
require longer payment terms. Accordingly, our quarterly cash flows from operations may fluctuate significantly.
Cash Flows from Investing Activities
Net cash used in investing activities of continuing operations was $13.3 million and $218.4 million for the nine months ended September
30, 2007 and 2006, respectively. Our investing activities cash flow primarily relates to purchases and sales of investments and purchases of property
and equipment. For the nine months ended September 30, 2007, we invested $0.5 million in short-term investments (net of proceeds from sales)
compared to $205.7 million during the nine months ended September 30, 2006. The primary source of funds used in the nine months ended
September 30, 2006 was the $201.5 million in proceeds from the sale of IEX. Our investment in new property and equipment and technology
amounted to $13.9 million and $14.1 million during the nine months ended September 30, 2007 and 2006, respectively.
We continue to closely monitor our capital expenditures, while making strategic investments in the development of our existing products and the
replacement of certain older computer and information technology infrastructure to meet the needs of our workforce. We expect our total capital
expenditures to be between $18.0 million and $22.0 million for 2007.
Cash Flows from Financing Activities
Net cash provided by financing activities was $13.9 million and $11.1 million for the nine months ended September 30, 2007 and 2006,
respectively. In these periods, our financing activities consisted primarily of proceeds received from the issuance of common stock pursuant to the
exercise of employee stock options and our employee stock purchase plan of $29.4 million and $10.8 million, respectively, partially offset by
payments made for share repurchases under our stock repurchase program of $19.7 million in the nine months ended September 30, 2007.
Critical Accounting Estimates
In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109" ("FIN 48"), which clarifies the accounting for uncertainty in income taxes
recognized in an enterprise's financial statements. This Interpretation prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Specifically, FIN 48 requires the recognition
in financial statements of the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits
of the position. Additionally, FIN 48 provides guidance on the derecognition of previously recognized deferred tax items, classification, accounting for
interest and penalties, and accounting in interim periods related to uncertain tax positions, as well as requires expanded disclosures. FIN 48 is
effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an
adjustment to opening retained earnings.
The cumulative effect of the adoption of the recognition and measurement provisions of FIN 48 resulted in no impact to the January 1, 2007
balance of retained earnings. Our policy for the classification of interest and penalties related to income tax exposures was not impacted as a result
of the adoption of FIN 48, and we will continue to recognize interest and penalties as incurred as a component of "Provision for (benefit from)
income taxes" in our unaudited condensed consolidated statements of operations.
Recent Accounting Pronouncements
Fair Value Option. In February 2007, the FASB issued SFAS No. 159 "The Fair Value Option for Financial
Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 permits entities to choose, at specified election dates, to measure eligible
items at fair value (the "Fair Value Option"). Unrealized gains and losses on items for which the Fair Value Option has been elected are
reported in earnings. The Fair Value Option is applied instrument by instrument (with certain exceptions), is irrevocable (unless a new election date
occurs) and is applied only to an entire instrument. The effect of the first remeasurement to fair value is reported as a cumulative-effect adjustment
to the opening balance
39
of retained earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We do not expect the
adoption of SFAS 159 to have a material impact on our consolidated financial position, results of operations or cash flows.
Fair Value Measurement. In September 2006, the FASB issued SFAS No. 157 "Fair Value Measurements"
("SFAS 157"), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and
expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair
value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement
attribute. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those
fiscal years. We do not expect the adoption of SFAS 157 to have a material impact on our consolidated financial position, results of operations or
cash flows.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995
The statements that are not historical facts contained in this Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Words such as "may," "will," "intend," "should," "could,"
"would," "expect," "plan," "anticipate," "believe," "estimate,"
"project," "predict," "potential," and variations of these words and similar expressions are sometimes used to
identify forward-looking statements. These statements reflect the current belief, expectations, estimates, forecasts or intent of our management and
are subject to and involve certain risks and uncertainties. There can be no assurance that our actual future performance will meet management's
expectations. As discussed in our Annual Report on Form 10-K for the year ended December 31, 2006 (the "2006 Form 10-K") and
our other filings with the Securities and Exchange Commission (the "SEC"), our future operating results are difficult to predict and subject
to significant fluctuations. Factors that may cause future results to differ materially from management's current expectations include, among others:
- the risk that we will not realize all the benefits of our restructuring activities and/or the cost savings contemplated as a result of our sale of the
SSG Business;
- the timely development and introduction of new products and services, our product mix and the geographic mix of our revenues and the
associated impact on gross margins and operating expenses;
- market acceptance of our new products and technologies, carrier deployment of intelligent network services, and the ability of our customers to
obtain financing;
- the risk that continued service provider consolidation will require additional review of capital expenditures and lengthen our customers'
procurement cycles or affect demand for our products;
- uncertainties related to the timing of revenue recognition due to the increasing percentage of international and new customers in our
backlog;
- the risk that our financial results for the full year 2007 will not meet our expectations;
- overall telecommunications spending, changes in general economic conditions and unexpected changes in economic, social, or political
conditions in the countries in which we operate;
- the timing of significant orders and shipments, the timing of revenue recognition under the residual method of accounting, and the lengthy sales
cycles for our product;
- the timing of the convergence of voice and data networks and the level of demand for our products after such convergence;
- the availability and success or failure of advantageous strategic alliances;
- the impact on our earnings as a result of a devaluation of the Genband common stock we received in connection with the sale of our SSG
business and changes in estimated restructuring costs;
- litigation or regulatory matters and the costs and expenses associated therewith;
- the ability of carriers to utilize excess capacity of signaling infrastructure and related products in their networks, the capital spending patterns of
customers, and our dependence on wireless customers for a significant percentage and growth of our revenues;
- the level and timing of research and development expenditures and sales, marketing and compensation expenses, regulatory changes,
compliance with industry standards and certifications; and
- other risks described in our 2006 Form 10-K and in our other SEC filings.
40
Many of these risks and uncertainties are outside of our control and are difficult for us to forecast or mitigate. Actual results may differ materially
from those expressed or implied in such forward-looking statements. We do not
assume any responsibility for updating or revising these forward-looking statements. Undue emphasis or reliance should not be placed on any
forward-looking statements contained herein or made elsewhere by or on behalf of us.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For quantitative and qualitative disclosures about market risk, see Item 7A, "Quantitative and Qualitative Disclosures About Market
Risk," included in our 2006 Form10-K. Our exposures to market risk have not changed materially since December 31, 2006.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on our management's evaluation (with the participation of our Chief Executive Officer and Chief Financial Officer), as of the end
of the quarter covered by this report, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and
procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), are effective
to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the three months ended September 30, 2007 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls and
procedures or our internal control over financial reporting are or will be capable of preventing or detecting all errors and all fraud. Any control system,
no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met.
The design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to
their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected.
These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple
error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management
override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
41
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material developments in the description of material legal proceedings as reported in Part I, Item 3 of our Annual Report on
Form 10-K for the fiscal year ended December 31, 2006, as supplemented by Part II, Item 1 of our Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2007.
From time to time, various claims and litigation are asserted or commenced against us arising from or related to contractual matters, intellectual
property matters, product warranties and personnel and employment disputes. As to such claims and litigation, we can give no assurance that we
will prevail. However, we currently do not believe that the ultimate outcome of any pending matters will have a material adverse effect on our
consolidated financial position, results of operations or cash flows.
Item 1A. Risk Factors
Item 1A of Part I of our 2006 Form 10-K includes a discussion of certain risks and uncertainties applicable to Tekelec. The information
presented below updates and should be read in conjunction with those risk factors and the other risks and uncertainties disclosed in the 2006 Form
10-K in our filings with the SEC.
As a result of the sale of our SSG business unit to Genband, the risk factor entitled "Our Switching Solutions Group business unit has a
history of operating losses and we may continue to incur losses and not achieve profitability in this business unit in the future, which may negatively
affect our operating results, financial condition and the price of our common stock," as well as the other risks described in the 2006 Form 10-K
risk factors relating solely to SSG, are no longer directly applicable to Tekelec. However, similar risks associated with the switching business now
conducted by Genband could negatively affect the value of our equity investment in Genband and therefore negatively affect our financial condition
and the price of our common stock.
Because our shareholder rights plan expired in August 2007, the risk factor entitled "Our shareholder rights plan may make it more difficult
for a third party to acquire us, despite the possible benefits of such an acquisition to our shareholders" is no longer applicable to Tekelec.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In August 2007, our Board of Directors approved a stock repurchase program that authorized the repurchase of up to $50.0 million of our
common stock. As of September 30, 2007, approximately $30.3 million was available for share repurchases pursuant to our stock repurchase
program. We repurchased and retired approximately 1.6 million shares for an aggregate repurchase price of $19.7 million during the three months
ended September 30, 2007.
Stock repurchases under our stock repurchase program are funded from available working capital and effected pursuant to a Rule 10b5-1
trading plan adopted under the rules of the SEC. The pace of our stock repurchase activity depends on several factors such as our working capital
needs, our stock price, regulatory requirements, and other economic and market conditions. Our stock repurchase program may be terminated at
any time.
The following table summarizes our stock repurchase activity for the three months ended September 30, 2007 and the approximate dollar
value of shares that may yet be purchased pursuant to our stock repurchase program:
|
|
|
|
|
Total Number of |
|
|
|
|
|
|
|
Shares Purchased |
|
Approximate Dollar |
|
Total Number |
|
Average Price |
|
as Part of Publicly |
|
Value of Shares that |
|
of Shares |
|
Paid Per |
|
Announced |
|
May Yet Be Purchased |
(in millions, except per share amounts)
|
Purchased
|
|
Share
|
|
Program
|
|
Under the Program
|
|
|
|
|
|
|
|
|
August 1, 2007 - August 30, 2007 |
0.2 |
|
$ 12.31 |
|
0.2 |
|
$ 47.7 |
September 1, 2007 - September 30, 2007 |
1.4
|
|
$ 11.92 |
|
1.4
|
|
$ 30.3 |
Total |
1.6
|
|
$ 11.97 |
|
1.6
|
|
|
42
Item 6. Exhibits
|
|
|
(1)
|
|
Incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K (File No. 0-15135) dated
October 9, 2007, as filed with the Commission on October 11, 2007.
|
(2) |
|
Filed herewith. |
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
|
TEKELEC |
Date: November 7, 2007 |
|
/s/ FRANCO PLASTINA |
|
|
Franco Plastina |
|
|
President and Chief Executive Officer |
|
|
|
Date: November 7, 2007 |
|
/s/ WILLIAM H. EVERETT |
|
|
William H. Everett |
|
|
Executive Vice President and Chief Financial
Officer |
|
|
|
Date: November 7, 2007 |
|
/s/ GREGORY S. RUSH |
|
|
Gregory S. Rush |
|
|
Vice President, Corporate Controller and Chief
Accounting Officer |
44
EXHIBIT INDEX
Exhibit
|
|
Description
|
|
|
|
10.1 |
|
Employment Separation Agreement effective September 1, 2007 between the Company and Richard E. Mace
|
|
|
|
10.2 |
|
Summary of Compensation Arrangements for Ronald J. de Lange |
|
|
|
31.1 |
|
Certification of Chief Executive Officer of Tekelec pursuant to Rule 13a-14(a) under the Exchange Act, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
31.2 |
|
Certification of Chief Financial Officer of Tekelec pursuant to Rule 13a-14(a) under the Exchange Act, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.1 |
|
Certifications of Chief Executive Officer and Chief Financial Officer of Tekelec pursuant to U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
45
10-Q
3
form10-q.pdf
10-Q
begin 644 form10-q.pdf
M)5!$1BTQ+C,-)>+CS],-"C(Y,38@,"!O8FH-/#P@#2],:6YE87)I>F5D(#$@
M#2]/(#(Y,3D@#2]((%L@,37!E("]3
M=')U8W142`V-"`-/CX@
M#65N9&]B:@TR.34X(#`@;V)J#3P\("]3(#$R-C@@+T\@,30S-2`O3"`Q-#4Q
M("]#(#$T-C<@+T9I;'1E[YY[S^^<<\^YN0`@`U"N
M@!)`%08-Y(<&%*`".5"17^`_C)5'\E79AQVG6IU#E7>Y-S0/:CS]0<7H^<[T
MK[\-I/77:G>Q@XJ.EOKASB_."4JJN]?
M_$'18Y@EQBB'H)]D#E+4^;O?[.S5*GAU4*OC*KIO7W'XEV>'#O-:AI[,
MI#CS1+:U/=%'?F99=ZKKK2*!"+AR!*7.V=(]DR,X>$I>M4EP(\%5LF/=6:FS
MEK.^6AA%@JQ?'C&W6JRFIZS!SQS\2;0N2LF!G#EF4'HS:15Q$G
MBWF1A^6-:+D:?RV_:(X,:6JLDL^]+GG.ITGT.8"6#;P]C);)-JQ2^*%8);9Q
MPS"25(BERZ2J/0$\$1FO,E&-JE2].9Q%;=0E9U/"DU<]OIW)&)9.@<6*Z#P]
MV[(NP0ANS)J8X^W8!RS=@MB'5"#11Q^P3G#)&DB>((%Q<#6Q'^I=/8`%N]N\;A
M7S'$FD-*YMGUE]0Q&A?QM%8?M"[;962O9E$@M\HJ7296P.'?NER4((@@2"!M
M4/DIR,S2AE[21*H?%&Z/I)%&">3.G"55`.1N3^%>SE)T!9*KXH";7"FN1LC/
M"PTW02-!0X&_30:IUQMS)HYMX-X&^C>%@B,090TO=.7B$67B0?,1BL)*-LJN
MXO)L3?_'YP,##L..TW<0]Z`T2TU\"AABD;00)?`]I,A#\!&4`P<4$/++D"8>
M([JQ&UI$(SJ;1^Q`_!-E[?WKL5?A<[#`--RFVX[]Q-Z`>ZIKI!*",`)78.4$
M"U,[?X9;N]=@:M<:?$NP(`"/\O?'0P@_0?J'"I^M6T";3R+BXRP["/"$%TJG
MEE`G48ZBS`']XC``?0EDO?M15X/JU+VO^7V7;[[W^Q^4R?^7``,`YG_,5PUE
M;F1S=')E86T-96YD;V)J#3(Y-3D@,"!O8FH-.3"!;(#`@
M,"`V,3(@-SDR(%T@#2]#7!E("]&;VYT(`TO4W5B='EP92`O5')U951Y<&4@#2]&:7)S=$-H
M87(@,S(@#2],87-T0VAAFA:UTUV1:%=`30FT
M//CWD00G00>2X)&'.U*>VO>67`3YQ=YT&&%P9!EGO[!!N.+H"`X56&?BUI5L
M)AU`)G*WSA&GE@8/=2WD=QK.D5=XZ?NWO=J!_&2+[&A,R+&Z_"2D6T+XPPDI
M@H*F`8N#D*'D.S_^9UU
M''#+,S)8CF\&,D6'.'C-\&'K)9#W`08`-9-:F@*
M96YD7!E("]&;VYT(`TO4W5B='EP92`O5')U951Y<&4@#2]&:7)S
M=$-H87(@,S(@#2],87-T0VAA2U((`TO1&5S8V5N9&%N=$9O;G1S(%L@,CDU-B`P
M(%(@72`-+U1O56YI8V]D92`R.3(Q(#`@4B`-/CX@#65N9&]B:@TR.3(V(#`@
M;V)J#5L@#2])0T-"87-E9"`R.34S(#`@4B`-70UE;F1O8FH-,CDR-R`P(&]B
M:@U;(`TO26YD97AE9"`R.3(V(#`@4B`R-34@,CDT.2`P(%(@#5T-96YD;V)J
M#3(Y,C@@,"!O8FH-+T1E=FEC94=R87D@#65N9&]B:@TR.3(Y(#`@;V)J#3$Q
M,C(@#65N9&]B:@TR.3,P(#`@;V)J#3P\("]&:6QT97(@+T9L871E1&5C;V1E
M("],96YG=&@@,CDR.2`P(%(@/CX@#7-TU`V$E*$P+OKA(7$D$3Y^U2/##BZJ">GRJBCHY/3NAK5>[QXK4$M5C6:+A]N7Y3^+^NGA
M:;7\L7A9+>_4:EF-/LU1?7NN3IIJU#16@6J^5F"TP5;"^LEZ%1QHJYH?U9[:
M;WZOQDTUOJ@KZS2I0%Z1L^K`JM6B^OKZ(6J,Z\^-#KC^:O1N,6PL7BMV:\6L
MS;"^YD[E)V"%_ZK2&/1>@PJ8LM1LT/7EI!EGH[;(%'2@V(-/U;R16`M)^QAB
MEST60?0Z1H]=L!G/NU'I>(F2EP?9.?OJI2/)2V#;C>.'`%&OM:CYN+X6_623
M$`)TV-FDF;!1QY>GX@^BTY`XO!WAXR^BM\9P6+I@?3X0%M0)H&OOIS`BZG99T@$*N/O/:8
M\V+X(:34ZOGE5@QS`.V]AS[[_'WY^.UEL%XYB'W^Z?$G)6;1HM%$UO;Q6D9S
M)T#HHVHH06QX@:(A$7:DKL&$[0TZ<#FW+2%FQAG1*G'J?
M2..'N:?!W*];LGUT*.8^1!T#>\`=H7W:>'`VG5TP!Y0*'O*;3O@PYHV)_6
MG:!\0(ZO63MTLR?VB.-BMWWR=B6!E(5:UT?_4%.)#3RSK2\,>!1)TB&4Y$(B
MN9>!8J'_9E]$K2;@P=U#!^(;Q/CFT`Y&U1L=G=E>9QVIL2.UQM^@LY^\))N,
MMBFQYKHY$%>GCPM@*-,]LW\JW"!O;!XP',[A15G/9W'M`/`B)I_Z[/%,7L;@+"^(2'UZ)J+$1H30)W_^51Q7
MX$..=V'$;'PEEC7P>+"T">,[W:@K<1Y#T)%\$8R!%4P:@-P.WJ'EF@9;2)W+
M*!N0YG%0K^X49&XF%THI#9*O*`PY-@ZZ,-B&I#[&X@*
M$_)]TTSDXXSRO-U%M$4>'<:$';S+FXZE%N$=6(K9X!(%*^_$S&(I5K:6K'9@
MR^K-:-NMZ6TC<6E)>X(GF=]J5VX@45E@PR`6H;G9NYN7[>'J[SF^,"DPGBQ:UR,FKC+=\BK2Z`-E:BL
MGX\SS^=6'_U2GXNKEM\F8K2%M<=B&1*_+UFD8C#R42SO<'X-)*U[AJN%$YM.V`^DCW\VL<27A>P%V],PTUJ
M\B`W@1MPH^?L:266`R('TT;LTR_?%S)M/;<07Q<]^J^_;U+>S47;SC+UR87M^^*^%^``0!1Y%Q;#65N9'-T7!E("]&
M;VYT(`TO4W5B='EP92`O5')U951Y<&4@#2]&:7)S=$-H87(@,S(@#2],87-T
M0VAA.;M=^JSW1P];KK%=-T[^MD\8G07V;(*+-B<7
M3;MHCKYT*IN$=>1+=F70O3$:3\Y;QQA+WCMYZ/%IVTP_39J3*W-Z>O)IM$4`
MN#^@UO8Y6:)>/'%_2AK$+Z_'Y'G4^JCKB#8$\'M=AQW9B?\+=FR#)L[.DG-L
M.'@K^1IQJ+M!>SA%2RTXD%-<
M'HYQWFUSVUZ_TPH-O+<^15_"O^MHMDP<2_3FHKU0:1*:Y2,*^E)%.5J?$0_Q
M$$A155L(0K22Z0J]GE[I'C)9R3E5=&NN--I#M`@QE/1G%?7B.#XE_45811%L
MC,15@'54#+"/AQB@(625`;48/(L!RGQ`(CQGVW=V66.F55DI^P3AD%+PR=L`
M=1K,S72B5QD"2ZWG>(`T2J7G"(=4&:)35-4J0Q3#OD8!599ZEFI9W2U[FU*H
MZU%%@[@ERH>X%2*X&@76UYNWG'/%WA[]K>\WL,1U&&Z/=1=)^CU`]6V7OYGV
MXU3?AEZJG>H"DJ)080K2R;F"/U_+G)JJ?.K'/1[0="2^<[]URD#KJEFF3X*J
ME?Z-1@AFS15;KOU-)D1!NQSLJ'J5$;FF6R9HI5I-6P<9!.(JX[6D4C2(1#
M'8<>?=MO)>_[_;1]Q/T;2G8N/VIF';\K
MN;"]QK`T.T*.^\2]T\2'8,BY3WL;23O'(UL._:3VSL:7:RQTOCK6$3YO?"LNR\.Y8\&WNT#_]P'@EP)
ML$;7.AKZ6E6M\?JJ@>0;W51"8O2%JRUQ;[=PR(N
M^UZ$;89A]OPGP`!#"EM=#65N9'-TG5Y?;$ZOPFO7IU?7UR]#93#Z]=OWEZLWJQ7Y^NU!`SKNU6$
M&%'#^C:@?:00[>_T"06AU"!4@5E36']N]LA.J()A=EBUJ4>O0EN:P0,/%0[R+9A5,!1LT]C(PN
M7"PR)NGA6>:TRUQ:9.Y4F&,.P_KS<[G&!(C5*H09HAP/>7?VLRL59)`:TQ)]
MW+@D(5CIJ2.W8>^R;$AJRO[*'GQ034N2E^`DI!20)+4[WN^J"-:$O`1_]4'+
MDF99@MM9GV:N7<1#\-LT@5;$)?GA#Y\YA]_M[OYT5.-?F
MB6*QYW,7^,%/*:%"B=K%==V'B$"P%\E$M!R_;2;1T^O)46I3@95$FJB_X2B,
M7E\I9.,C=H=_NM__Y7L40]3^3=O#K!8TJX7=RHIQ
M=*M9.RHF-37V3(9/^9#\HHEI)8>O3!1[41M4=O][[[F*[-`%(/?_+1`BHC
MNC]L?`\2@:S\76\[^=KP-M\"D[4A-[/LTA#VAS!YG^T!A,S]%W[Q[5V-I3RP
MD_U"K3]H>-W??BK("E(XI^](!6%[7VO0_TP%H64-1]15Q-&\TB"(=R]\-%G9
MRG#7F?3Y?SN=MA,("CUYZ>P(F6\`Y=_V(K>]!!$L08.NKMP!(S8($NOP[JV;
M3B&%B#B(\'%WM[MU=25BLV0/
M@R\"J0EB'I,QJU!R?TA,Z\^VF=G&6@.;$+Y.NDEP]U?*L>:B3Z/.]A=/9VT)
M8EMWK9W:(WB^&5-;@XHMT1U*,;IPL;B"0]QPXY:>JNTX1:2'#SZK;%8EPRW<
M8<8V.%(:HKIUYYA-UZP]ZNYC;-Z#MN+VJ"L]-N_)&H<S,4[>RQP9EZF,
M3TYY^C'HRI@1^6(OB!23SLTV10\_<+FF$PX1R^+QQX.)EIDW8I)Q=#0M\/J
M[?O+U<4']^+%Q?O+=V\$=B]?OGYSN7H]K"Z&(3IPP]7JN2P4`KEAZ]HG*&[X
MZO0^4*NON8(<.OF<0GK<9WWV:K>;QN/16<$A!Q]C3/V/-H>=3O,(J=-GG)/X670KYOT(W.F9/HGYU$R::P.<(*N`;&V4?
M`G$%IU[;C$'RI2N8/-AE]R4E=Q1>[
M&9`H+%*/?K11N3*(N"!?C8A1A3H]M352FOQ+Z='MQG0L00H$M>SH/OYCP0#)EP#0T_;%
M`\J@%[#VK&E$8FV29%(QF*0T:.D'^F@VFGU,*?7H9V>:BYB%S])`.]:L$Q"'
M1RG"'IT^F\,NB!N'S"J&K]>C>150)&+(<4G&*GJNF9>D3&8L&7-5=J>9_B6Z
MCZW9_3X$>??Y!)06A(!2JE6ZDI+-9,,R="!7E>"964;D<#*7CCW:1Q-'SJV)
M]GFPYP[.GF5(ZEE[[A#E,&IT9CB0D;[HNI3Q#^Q.GGQ@4&=;G]OO.S&2$ED5
MYO5FYNTH0LN_&,25G6+I^X74\>PI180F$W=<(`AYJK7GJ!+$;J8SR7NK)NXL
MZIL``P"Y0UJ=#65N9'-TWUQZM:
MJ/!4XN_'4ZM*QNH3CT',Q:;K3U>OH4[BUK;HM,R?(=T:>9&QI9\PZN2B6W(Y
M0U2$A@[>LJ<)LEJI-4X1+/,_$.Y"M96^A;]@=%"UC-Y#U"JY<4TA8%2)(\5;
M=+Z#K`MUZY8J@3/F(S+FO*<.(Y([/!<8HT9R<>K[&<)2!L7_ECW"A$G(4;FU
M'7*4D".[Y(1!E#E$GO-UAX-MA;ARJN[[;Y"5E?7$3G_-!U@*Z?%1C7<(1WI$
M;&X[JB;=R#2CC_ARJ\A$4L"U0=:#U2QS?*Q'"+4D!S]!G.+[].E[UP=78$\0=/4R*A%<;?\$:-*16N*&&:LBH4(,UH'9-6HEY;8)I`-B_>F.80[.)ZJ
M%ZJ(1<]V0LY-`]HV>H'"Z=9$BJ\3S!
M]8/798554Q8@RJ$%S]F=#WCV4_:8K4FTZ5&2;$[X6'7*ASXMYWG!=ELWTH@Z)1EVZA9ZL#HX
M]ZOM[B!4+"
MHV8U9>.5%S"-#^VY`4)[:!2OEXS"7&B,@;;N1"D$O/MKO+-JESR-H*.?=[*+
MR_U:R/]PXN-+MK*^O-X:OZ_"YW%%BD_:PS3)?%65]?Z
MOD1Q,]%PL:W6?(E.<&K&NPRK^Q:%AN_QLBKKR\$O\KL``P`!`58O#65N9'-T
M?'!>/MNGS)!2
M9A=R@L`^N^G+Y&1E(HO\9APC-Q:R>,BEI#%R?7MJ8IO74,?8W]QL88'1!^`J
MH!'ZWMV>!!..!2AB&,-O3]V3B0X50F#E?&9"B2#YI%A;.QM;H;*B[^ELOBH!^J(\;];.S`7Y""FHB$V1
MD?PES_4(Q@@):F*E7V?V%,(*6*)R:ZJ1`DLAZZHPTTN$@(@*^VVVWKCJ38-8
M(?O"1TB'4@!,A52SLJ$9@M=0L_60)#E%KY+\%Z
M739?X[AB<_7.2ZK@L:I@+'JXE5Q*W07KGXN+COY[--Y^Y^NKD]Y@DR)V5V8",HLLBTL;8/
M-3MZVPBDV'D,M0.@#`F]@GYU+R8X!BA!!6OO)%%Z2&K2V(>NOMI+29+-(5=U
MLQ]/G=E[49H(%TJ*LF[E-D_V?!-%UXHJ%K>RP4&&(6GOC_UZLS(O.HQD3C3&
M+X;(AY8AF%^ZR99NVO3%W!K0*+I^[6;N>;9ZM*.4<5F"5Z>ZV=S,,?DJ.8Y%
M*>>Y6XDT[^WNRZ++3#@V>>C%1M9A>VI4*`DU$?;4D(1XY/?1;V-J-D,Q#P1*
MM5O]%F4\Z)R:7#%F:`UE##4G'X<`Q!KJ7J^]7-F=6*1.(:8CJH(3RKS.^N(V
MM*T-&KI8+LYF;]+*.Y*HF"1)J4AAX1%]@*O,DZ2O/M^)9.``W%^ON7E_5FP5
M_T['W7;3\;L:,).Y:](DVQK_RE#WT-L#2G;@I,"+?M,O%R:36=+#-(8O']RM
M[/YFDJIPQEX9S.?_6R[(;?JC,AHXDY?'^VTA#P*W&U2"6+&,K4?,2[3\EG=^
M*PXT>TK;X&I5X=BO%*UL44-[F\I0Y)HAC[%_?G_N9#C=G04GM$H/MAM*&QWR
M_C2VO;&A!6K(ZIA_[:;3=O:LF)L_'5A6,Q3O1\KY3X`!`+!8:>,-96YD'`MM%4?@8H'#MEZ2;
MUEDX7;3]]\N7CZ*/&>^Z2(#GPV@D#CFD-#O8'"[^FJ5(D4.TO\=?TIAJBSFP
M1"H:2UA\F1U<#^%L]97"Y<'\9EBA=2J5>M;ILEN(5*;>-4VAX6XS7!Z^"N.*
MB\7LXNU\=OPNG)P1VTAM/3\]?SV?EB=KQ82$AA<36+8;$RVL6W\"**
M;%MT"R)U2NUYBQW<#7$?&4^,\K"#_4H-;9.XD^3>`\=*I3SM\\=R>SV@R%-F
M"[BF*3PL5ZOA\[!=?H5KNHF4QU!^73.L`P)S9,J5W097GXQ]A!_/^4/Z/^E&
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M:=[C"&R?DCP4'H&36IT7<76SQ6#.9"/&"7P-*YVM'*S&G`SW.#3I5),OR"U,
M,FLEU>8T@[YDJQQE#\4GR-EN1=Z8`4=F8].N+$ZR>PQ5&X+1NW(9[F^&SW"!
MW6VB>NX=4!X=W_=QO-U>S/'J#'>'Y[::X]4I`9TIR?1MQ>G[-X::?]B7V7(#
M>YG(V'NKX\6#3)0T5R?PY<'R'L.UV773%^4:7V!L4,?LCWP%2T(LSZE&9[@-
MYJUB/FZ.=XUK39I0:[GO4>UBLZ45#PWO(;9;;.HS]P]\FT3S,RP(I4ZU!-
M:]NC[:A]^*7?,-3ZOW97NPE#*U7VLX(AE(VU>-:/&%K!`8[PDR^9KMWIRC@N
M>P1DNSHZ3U[A!Z)-]^(;+YX3:ETO*;N$P3EASK&NQWY4A0L(KI8R]M[YCJ$V
M)TIS>8"=R6ZW]IB+>YUV1'0/A4-"6[?A[F]#&_P&M=TI1Y?><+:"ZF:VYF]#
MQ36<0XR5L4,[9H+5D,>+5I.)9/\*,`#4<5P%#65N9'-TV#%82ZK@)`QDQ!V$R/'D-U_O]5.
MA'!-C3)]'U[]SI:?_VXH_7CM&=G:U>
M7W2KH>N'@1RZX:KS;M@X^7APZ,$'>?1/3QFAULH.,P$FG]QPV[V8TPZF-GCO
MRV&!]I2M52(=E@D.$T**GA^7^6N\/RPUP3D`EZCH`]I?A(_XW*8B9V!6RYV*
MRW36)(ZL(S>9B4)*$&NU'$Q0"6',9<+.P`5J+GD97%)33HM<5'%AQ,RFV1\\
MZWS,P0?/N`S&YCFK:/QIHH$@Y:1,;&VT0$:-SC@@D:U)V]7%TVHU6:EG2A!P
M6CRTDG_0F=T9--MU6IY8.J'EE#U@>:;AXES#86[:K]JC1,5H@9_+4(&4GH)P
M?N^V5V;,,E3&<$R;T4U>TJM),[TI"]`FRZ^DF=T<),XU'I,_QEN++15*(*7Z
MR2)KA)(T.>XF^B,FYYTI%F?04A>-*2:Q.-`6K4N3(K,<0$Y'4$QKE1
M%Q*W"5:61$%&6*T:-;LL9`]93IXE4<@,N6IT=+OQ^L;D:P$*2>?"M$&>Y40@
M58P[,\0DU9BIJ-:YLW5E-O+$PWLI/K,F*+3Q5)4-M]F:(YUBE@E%*MV>FCPXG4.%%@VR=DQ^M\D*@14YGKBY[16)10BXI'BBU`/60@OF6JSMS4:U
MW&UD:<\J
MBN_TW'4Y_Y:BG/%>&FFB2!'8R5V!DES`R;TB&/7Z#V4QZ]EX(?'7_KS
MW?[F:KW9-R?#?]]&U[];7]_?F7O`]-8_&_``,`E9\_T@UE;F1S
M=')E86T-96YD;V)J#3(Y-#<@,"!O8FH-/#P@+T9I;'1E\W_L][_9\$`"-\3HTTH?_.B9VTN",_'9>=G%73;5%@!G.X'R([L
MHD)'9G'-7>Y=!_S\)A=,R?\T-3^68ZZ95Z;,F#^YWXZM'P%]:*-H5%YN5LZY
M63V&`^=X!#WSN!!D-'L*!'S&>5A>?N&\UHG[33WF;]'>'.+[V^AU:`U8M_@3JU7C3;.>F]/A]$ZSJG40K86]^/_[
MA6,YPE"#,AS%!)Q6&FYY&1DP)`0MH:0W!DL@@F&*/R+AQ&"DHSG2\(TT1B6Z
MX5M)P5()QW!L0@<,0PLDX1ULEH'6?2S%19F*"I[^6!+1$4,DU;J)$4BW]O$.
MH"_>P_L2@/;<\1>G=8,6YN!-',1E6!B+]>9F6DG'KS#3VH?QN"!C99S5!H,P
M$XNQ'EMP&'?E+3EFF%8F>F`29HM=@B12%UL?(]Z\TF"/==(ZCT#J;Z'5AZJ+
MD6)]AT34&&+E,:)!Z$Z9B0^Q%]'%.AYA7SL;4`S>A?')&6H!R?XP0>T%J*C-3YW@1K&`1^
MZ`(W;UJ.-_`G1NXXY:0TD5`91,N?RPVYI6?J>[3\$6KQ%/^22)DJBU6"*C9C
MZY9:>Q!!#Q-I8Q!&8P9V2(0DRCB>W:3FJL5JB=ZKKQN1QB,KWCH!&V*H6XQ/
MZ-=97,3?F*\4&2J7U6*]RWS#6DB\,5M.JG-ZM!ZORXQ$H\RH,(X;S\VFYG'O!6\UHUYOIRN&4B9@,A8PUOLI)W!5
MM+26=K347])H::),ED52*N_*5MDN>^64G)?[\DC^K4+4:K5.'5)_5N?4>=U6
M=]8N_0==980:5XT?[5EU;;U'O8^LAE87J[M5:FVRKEFUOBRT8<4G()G5-9U<
ML!RE>!,.:[<0:76'JA>J[]M5,GZ7GZ/?VU?F;,-V,I%>8>\['M
MKCWLN\&ZT>K$4;*R^(/1>'`:RY-&8Y![,HLU&$N8S1`D9\
M$RNG$I_B$+Y$%6-_#M?(4/5XZ^4^,_$]ZN`5Q7R:XD=Y@;TK,Y/,:LF47.;V
MA2R48EDIZRD;Y?>RA?&](%_+1;DI=^0)?8**5DEJ(#U*5^/4!,I$E:V6JE5J
M-^6LNJRNJ=OJF0[4375[W5&[]13]EB[1'KU;_U5?,B*,)"/5F&Z<,B[0\U1S
MD#G1S#97F5O,K>9Q\ROSKFG9UMH^M.VWU=C][3WMZ?:1]I7V/]H/V:_;+;^.
MK*>A1-\)/WUK99P1HTK%4OOI]Q%5J$^K=5+Q,PV8)420@XEJOSZL/EA4JF_K
M':H8,%R^[?YDL2I\ABKSHM'2J>AX-0"4K@2SBZ^@'
M.",=&,6+MJMX'V_CH&Z.<+U-O:XL_:7AP.]0K8?PUM^0G]I('"WE8RK]<%CW
MO.6T,`WQB)=),A8N[J2BG95/Y-O)18G6>&N#.<;L@K,R1)KC*-DKA%$L,QMX
M:ZFYFWUX#:FR"KN\.3C&=R5$PB66U51K%IFEYB?F;O.(><;6#?/8M1N9Q=OX
MGJ^&0[(9BV_Q`VM]`+LGBOV31!2I?,-FJ#'Z,)*E%0K(@9'D[0&,P5AF<@ZM
M%&,U^VD;WY"S>"R!,AY'<(6=$\P^S^;]?K0S&*\RZW.PG>RX3'9Q)0?MT)EQ
M>B8!$J\*>5\]SY:19X\1TW7<(W-8/EQ1TE=3=6'I05?PP!6U4B^[/UE
M%E$TH1]U:"[#T<,[D-8JR&7IYK;$I)&)":_T[]>W3^_X7CWBNL=VZQKSXW*.<7AJ?>.AOG&I;]R8X]!0
M'G"X0_)<#H]D.MR>E**\$G>FB^9V-O1/=B;G^D='8:=_0PX;X^.Q7\&A.4IY73Y?:T=+KJ$7ATN#LKQY,^(L/M:AT:.B8ZRB/)V?]A
MO4ICH[JN\'G+O!G3`8]-S&*;\(:';>RQ@;#$6RB#-[RP>8',N+0=+U#`HH%:
MT%(:ZK0@S,,T#5$3TB*"HJ:+:<.S$R4&4>0(*6E_H/ZHC-*DP5&35)``2:JD
MJE+%K]^Y\]XP-E:A52U_/O>>+IE9'#
MR=8LQ:R>M5WGKFD>UJW3C9%D:Y#_1J-8`W/EG)J868.M^Q#$AF8=N\F'HA%+
M.H0M=3X)GRI^OBU&-6MB.W0KQ:@PMID[8KB:3-.BIGW!P086X9=2\9&MO2XEL3TF`$FOT3\#TJ&YYKCIE46&M\O']
MYY[?5."PFBLWM+2:YI1QMAID(-.L,?0:,V:V#=D][88>,,QS^%S),W=5Q]P;
M';+/'\VR:OJB.,0VJ0QLE:EBP)!Z&P?"4F]S:^0<_D_3>ULB@[(D5\8JH@/S
M88NAW#$DD=#Y7)U''D!S7
M!80./T5\]][@6#4]'*!_'1G+A3,2C?O13*U4RN:6[**?SJJ[R5*)%@#K\8_B
MC[1^:I)+J4]FV4^SH?^6^C@MP/@*])=`ML(N0U\/'`:6`$%@*5`-K'%D+;"2
M]P!.8(U\7D=(HD>]NVFSYW4*>#91"+(1R$([7WV7%FJEU`R$E#EB[`RT%\*6
MZSU&^1@W!_T-&+>,)?JY:C?M@+T>[<6\)LZ1#CD-2(<^B/VOL,^0E>HOZ$F5
M[)MHYV+MS9@;4H[1.LCUD.NAKX!^+?HUF%,@]]NOHUV%=@BQ6<-Z9NR@/6
M84X#_&P4ZW732MBF8]\TR$5`&NP92AX]+UVB9R&_HN:37YP;8\2Y-]T^$^1J
MX=,D8!_9OV2P3W*I_0GP-O"NXUO='6"_DD'4H2REP.#UYEHG\=?C9Z7J+EW`>F"?!WZDGX]"FM@RVD/44+H5\F
M/P".;:6%\L^I1,NA%)RO%6.K@&[!/>9")[7@/FS(J>K[E`G;?"`7=WC6B5.`
M8X,^WR_.9W\$/VY@3"/0S-P2_.JD`/;GF//=ITF;QL!-^SIL7P6^CG.5`P_"
M_DUP."KF8#[6+7=XF)^0`',O"0O8!Q=\3R[B'*$,X#X'><`EX"#P!+`+V,IC
ML&X!QC-/NK!F-?KSF!_,#:S%]U#O<"<-_,X7'(N_F9\BCO7`+"!5P]MR,!5C
M,_B],&?%>\%;8#XRMY@SKF1^"]Z?D5[A<_*=)\DLSU5J9A_$V<&M))G+/&.I
M#%.!D`6T@#G+?'.E>)-Q_W/Y3;@RX0_>)[\1EFJ(SQG[NN>,?"`.MYTL)T(:CMM8,I)M
M_ZW^?X%\Q7.&MJ+]@6<$;V>$CN.LY/U06@SHKH1^$.@!"GPAZ82O2QKR;L1[
M(OH4>$0-XZV'J5@=1D[(H##BE`/]1NTGX%P7Y6'M+^0PO8;V&\A]Q0KA?6(O
M^0KR!<#K0ZY-XM$XSDW")2%=ODXB0PZ7A&0^(Z^]Z7EWE4"-G@\G,B3QU^KG/X>2'[
MF?,CYSC.D9SG.,>YXR?*Q/Q^>AIG>$/DX/(`_;!T4^
M[+3W>&OL/6J1O4NHIXNZ
MG9S&=7>9IQRU*5Y'1?W45L"/;:*^%:(_@]^A>(-'*5W>C[CFT12UF+8J%TE1
MUJ%N0J\6(2>S;3?-5VY1MGH$N>Y)^X;R!*T0=;.6MB@Q*N6YRB"E>AZCH.?/
MJ&7[[8_%>ERO(%G'_FM;:17G`L].47MW./FXD._>IY'?IU*>&',9N6F4TODL
M(@;U-$_$@><^1L1K>:_37+54Q$%GB#G_(#_'@V,T+A;QVEPOUAP5^6R:6'L4
M>_Z!-C&TN53O?0LYD_?:2;$4F?.B?]+YKF")O"_J_2WD*G#$$]\;^CKQ?<)UBK\3^+VL(+\6PWR\"^$#UQM>.U_$
MM@X<7>6;@MK23JEROR2!>]GBVZ\?]]XO\7?4XTGXL:/+CDLI*%\3]95MM^2+
M\EGYHMTEZGTQ%2J_07W\"#G^%?!A-JV0.ZA$-JE$3<&WV4-H?X]*E%\#QQ
M_?:H.A,YO`KZGP&',>]/B&S_:;U.E\C*5>'Z`?@ZX^AKD
M*/!/S/L2]2DO4)\6H$-RAWUA7R10W_*C#D
MBQ1A"?OSP.^`JZXM&;S79/IDJ'^SSR?W/4NHE"$7VN<9=XP_1\_U?H-V'>A+YG`3VM/D+WW\V?NT'Z(RT6,8PC?"]GO%?P
M-QK7Y__7>O<*W._W@6^(^)^FA8)#U_!-[K4O21?H:]([]N?*2=(8\3YEBGB>
M0EUR[@GZ7J&?<'_@RH-*$RD3]6@_Q'#[$^_U;GVLNST9+@]<>)=0F*%>Q7A@
M8M_70V&&QAPK_#?WU1K;YE6&S\5QXCB?[21MVJ67S[/=+G6;VON2-26(Y',O
MHPSF'KV))0EHW>$IYS;&>9TQ`ZV!]D/>_SON>\Y^)SSG?>]TRW
M)\>="8VD&NMTMZT1`$Y_H.#CG
ME."L`AY`Y:C;D:MNPW?Q"JDGY$:,D&O'";F>@GX=W`_N1(PH!_\:"*'LA^"U
MX/G`JZC[`'$$*?MXBZV)7)*U$WO@E^3P#)=#_C9=`KT?_?@"[@^RB_"+0`
M7D#ZW9/!#M2_D6X[_DWP]V!?!7\#.(FR+?!Y%/KSP/W0AX%_`D\#H71_U^!W
M[8C,1V[R#OW?\@SOC_^4T^\-$LQR[AOBEGC[[)S[YLCN_VR4OFIL'
MS&;/UM^MVKEYQQ3[L,2_J5=V;EZ2M7,QK7[ZV4OG,^7XWK+(^>YN%?A.U]A:
M)TYGO]?L''*^X\+)[RUCVV-D';`^R[@_*G"/+`/V9-Y=?NB(9Q,[P5L+KA.C
MX)?$@(T8._$;>>>`M\HZ\![Z`G)I1%G8WX&=C[M8^MZ;P=;9SG/NN97YNN?S"Q!CZ&ILI%YR)\<[;
M(=][L-VPW<=(XT3*QJWUZPTS"5Z^4K&H6&8ATWY."YJ*DOY=(*8:2;'R8I@)%6/D9B`(/[(5%YIQR('[(*788'_B/$
M"\0!3CHAJ;)-0/J/6*5ELOLWA;M8M1L2X>JT8GGF&PV1.?P-S.!#[!7R::FN>SEMMCQ#%>%]R[^"-D&:I_RG?B!.C\('^,+%!NIX4K
M/O@'RNU]V0O&>T845$FR-)>1BC@0Y2E6_#)6_+(:
M[3UKZ6J#1);R/20,,"SJ>6CGH7GX,+1A;-,PMF886S.,60PCLR7\7=2\"Y\0
M/T/:^.LD`>R';D.7CPBLX%&E!"J,H_Q1O@LKX>G!VE&4/F8Y7')FNT1)J7+;
M916YC/I>/H#$;`!]FGS0FC??:.WA3ZB_DK#F+Y`-_B0<15BZ;Z7W`@UWRCWH
MY7'^N%J)W6H%NG\+DQ(W_[9J/&$5%1LQ['XCS%;(O4`_,`+8X-:(_]!(F@`.
M]P;+Y3;?Q+JO'GA*M*[^4;\-1@C-$,F`(8>0[`]D";0#,2!3B`%C`+YI(]78IQ*>(S!,K+C#O6K+",!^28J44%1`US8XV
M1]S!PP[3T>#@'H?7P9(3*9%?6P4R2^RU5:]%WXY>C?*2FH0]D<_Z(D6TF`P!
M(P`G?=0#RP/+8WZ7]]4-U8W4\;[H4'0DROO.#)T9.[*HSVYER]COSNNTI>[_]K'W4GM=@;[:WV>/VA+W3;M?S0_GU^:;=-AI9RU['
MHG9"=@.,Q"$32O.HFA1DO[(3RFZ&;%.V"=F@-#]D6&J`'WV]!K\X9`*0?M+V
M0X:E#2`\LM,H:X-,`(R=-A?ZP@$SP#P!;X"1`!T-T/[`V0#K#J0"+!6I98-J
MEH.8Y:":Y2!:#JJQ!]$O-,"/V0XHOP'X#2B_`?A)[69ES9!M2C,A&Y3FAPQ+
MC0T(?XT[,H_M0X]-D/N!(8`CG=M'ZH%69>G2@^V#-%F'=<<*(YYD'6(I+D*0
M+TV+T[10D75;N=$4<;,.=-F!+CO0B;1TH%Y:$RG6+M9)WW;QF3355@U%:A`J
MY53:R2&`(>-N1P]2"T'6*^V0\G%/VMV09Y76!MDYV:Y):3IDMBUG'?BU0W.S
MG2C=:3H9*2M#6E)27%"29,?$@R5ZDKT@*CP@*TU"4J24<:R]1H>5_)62^Y7\
M@9)?5-)M.OW:%;_V>[]VP*]%"MD])(#B424O*?F0Z0IH;P6T$P&M*Z`]$]!Z
MZ'GB0\7M9KE/N^C3_NS3COBTYWS:DS[M?I^VV:=]P2>[JB!>HK%%4M)M2BXT
MYWFUZU[M+U[MI%=[V:O]Q*MM]6JU7KC3RPB:&OVQDD\I>=>1:DVOUA95:\<8
M;B9ZGW`31P]C]#ZB\4(1K-.3W*&(W2ZB2T`+130"6B"B6T#E(KH#5"JB3^H1
M!W/3P\A(=.:BAPLD%XG@;E0[TU0@@MM`>2+X*3U)QT70#[HF6A:!KHJ6Q:#W
M14LU:$S2B_0?>%6A&_IWT?(TNJ=ODPK9+7V3+&6_`"=%M![>1]*C(Z&LHTM0
M+)`T2K?G11"3HP=%L`)T0`0#H)^EJ4L$=="_B*_>V":2*SZS_K-KQT[6L1V;
M.&;MN*R-%SN)$R?D2)R-8R>EK@,DD-AFM-QPU!US3HVJYJDBY2B=5NHK+!]H/;=,*D:-J#TS?K%/"2?1+
MOW3LF3<[[S?O_>;-[.[;[\N9((B+$5F
MY:0#U)-RDE@X("=K0.R7DV$0>^7('1#CF;H;YS"<;)Q!?H7IL)SQ@_JE
ME84,(I^B'D!AQ7*7G"0AZ21&VHTXOK*0&.X@B1V.XIQB193]M0"+R'X>1&LQ
M[,\-_"6@00QY9/_;`.+DS'H0:^5,'(2#
MS`12YA6OY?`=0L`FV4]0K.QW<>_C$I11+.H1CR]=PG<_\2\PR6
MN7_X0%SE_IHWQT<POA5J%\3@_1-^C`]0F^GH_"^\=+K:#>]EK8P
MY0S+E#(&1L\PC)91,Q2#&$19\D\610'!T\NB98G0JDFK5OHL15IH2$Y"889"
M7T&2696@$KU1J4E(Y.DG/=)&(2'16U],Y3#^5AHGI/F746+$)3WL]>2Q?MM.
M2>.)8JD\@1+;HW8`2]2Q/$;;4WG\A,R8=4CE':EK".,-LR<=1';.GDRG4<5,
MF[VM/&)J[HP]IQE::>,Q8;78!>$+5T[I3*(W);WE3$LATGGB3">D];VN@=0U
M:A^U)QZ[1NTE(IVZAL>H??$>,H['8FF`;5)@*$+M!1A*$@$P:@!%"`S&!YZ!
MX1P,QW*12!&T!><("&Z:+0IH9Q'4\2Q(=0)W**`.U0D%=+'HT`\\P*%(!,`T
M^Y!?<>C7[%-@=@++\3Q8RO`$D@OQ`,CQ(46];57M*ZHO%]67B3J/\:H^S!?9
M^A"O>.`I'V"$_V,9C?X/D_!F"O7FGJ..D74K9Y8#J7BVU.YE#@:DUO%UKAG
M.):>ZSZR(+OHX_];7QR'.,'2'&-A)?W9//44\2=3?Q-4E\31)?W6*WXBO1
M$\6)K:D<@Z+ICH&BG*-*]'"W##GR"BW#J;W/;#CO?4"%]")4):,GBB
MDA$J407:`^U$!;;>0SB)!*#H4!`0^8=5*HE^A)/HEVHKZCY-_3'Z65,TK&?X"U$4E
MPY^'['X!ZB)D^&M5\Y&%R&)$-9]<2"X"]N["W<6[JOG`0F`QH&I:84!E<8;63+2JG
ME2G%T>SJ`8;G:A5"FBH-?/7!EU3T"H5O:>F\BA'-2*.^I4)Z6GT+HS6,5G.+
M4MW`[4B'U^$^9!?8ARV/6[K9Y9;DXQ;4!GWV$31UM6Z3V[0.&ERE1H]>)ARY,9U<\UDXA'013&.\1J(RX).+$C\*%)$[8V,%6HB@G@H$,7
MP!:=P]J``P%(P42OM<%BM38$L+5!7:EOL(9L.*`6.,[IR%^'2R?RXG-SSDJU.X]/RRX7=QV0
M\*V*3U\I+35^9,M3R^\*HLG2(-RD'B`'4E/+*`0G!$9">>J!Z&08FJZI"8<1
MXGFGLTJGUYO-%DLPZ/565E;E\8#(.ER.6L>0XX!#[6AJ_.R^73"5-P_6++6P
M__WW4%B"^GBYA5UB20/17&*7VNY!`S&%?WES30N8J2&57H-).*3.6VYJ.E
M0:'T&^PORZ#4U:)!7&&KL%JTM-43YGFOJ7XM93/Q?+BAL2E<;ZVPF3PPRGN]
M6EIKM538S(V-X0;>2S7^/9I:N-:_YP=[_):^;P[??_/V[?ZW?N)U;A/KMO9O
MWM#9?JB_;VO72ZJ.L\FQDQ<^9J9$#\'-*K<1X?ND)C_5'U
M#?P",J)#V*Z<*EC^$EE@72WVJ`CM^A`LA\;-M>.6'9&NI`W,'.YJ:>\?:`R\
M2.SV%#+4*;!;CK:*OJ.E/RNCFM3GJ._H+E$_U&GP!TAE^,!H-AH,@*VUE-$<
MI"4J.D^=%G4BB]D^\_XSQ.W@TB"<:+(?X+]M20GD(+9"E&BMB2VW5=BL/#*Q
MB#HU5A?C:_L3#8/W"SG%WQ?RHYWAT#;\`')7$2\!MS7`
M+:UPZQ&K&]5'-*\F7J,]1YW8^H'^O4P,X,[.#.8VG7"BO3%L+*`JF(P6"L
M-?</O.UR7\
M`O;A+H59=B@9K)!A`(<'R_OJ::UGNJGNZ7-3(W3-*TU.(5-
M_:]T]1VZ7#B_(?1FKTG'T*:!2/25V:EOWR4,0G@_=9"*P).A4C10GR!4J<%K
MU,19-WN/_1.J2<):L3OLIO[-=-4&1W65X?.>>^_NW=V[7W>_/Y+=O?N1CQLV
MP&Y"UJ;LA1`*2#1*J8!N&[:M@G2:"0A(6[1(D1+44A4M05N<"E2D0B$)"U33
M:6=T*&W33COCCZ9CT1U19W;X84"MY,;WW`U.\^.>E>+WE`*B-.\,^Z@QM
MXU_M91C4/N>ZQ9;N+G;O%[(J"@__!R2!%O6>)V%"V/+)#F$8\RI9-5OEQH1-
MQ$]46*6%+!%3S)2VM`3,P8@O[DL'6RQF$7:*#9A3S\E"$W;G378Y4.&L6IIH
MJ4R>:&H6FUPG-G?=G==(/SG&D)HG.Y680A4VTO&,'>R:QY>WA]I8M<&/4[?V
MU4H]Z[2`HJ6:\@I;1&&+*&R1006&6-U?CP.-A[X:R[\!+'(X.,#L$,<;/4YA
M_1C.&@C,S9IC7\\NK0RM\40L04U.A\M!3:ED.DE--LDJ6211XDT^O]=/3:%@
M.!@)AW#CK/.#D7RBP4=/P.KSLB_3T)T@#\R:B'5?384JF[SS538CY;E`LW
M:[?AI@HE%8GG]N)><[Y$1VXA*M&=SS`,FM+TJ']Y7VRF,_6E56%Y03RW4H9_
M"IO^^^O=O6WI=//R)^G$_>V)>*IJ:!!W]#/<493\34L]37]#3W-4%RM<:M0A@(2"
MG-8B1'`)5)B2WW=&82(*T7"C$V`"`$(-EV`='"*&RDM#6->&^J9G2E52+-98
M[M(\HN:W%T4MX,`FY,3&7C#XAR#T?&6.KSC"X"D.,OJ(R^C/1=U%8VS5;9@D
M\Y*2NR`7\*?K"BM:I)1(=!`9;8]A91"(.8P)$HCAHAS7?_O/,/CS[]P_LC;=
M.77H:Z<&5CVLGX;T(TM:E90?QB![://!$?MKE8&3*_<=N*B/R6HOPS$Q^Q=N
M&'%4R:06,SL#SDWJ+G6?;Y__J.>P_U?R"?\ECVU>M!BE7A&]#^V'$!>[W29L
M2RPP0$22H&_A/>@=C"XB;L?NSANXRAB+*O2=<T3B`8+T$AXD-
MPN.-=9BQ&%QPOT]:7"VTA14&MS,`@?`\9R,TLO+0&&K[%.8J8CZ$56(:36]Z
MQEUH#X5KW218+(9KJNJ:J;JJF#)*-<.$$2[H6$P_C19+%PPRDE":ZC7?4!P+
M$M"^=9VV:\/WRND5UX:_?V'ME[<_KK^MZZ<_7UBJ)AI<;ZQ=]?77Z$O)1&%[
M]YJ=/[:??.GTML\>["B<_-8'^A\+S<7L$H?XPO8-!ZXC,#GDYM-MM-B-U$?#B$=@(F$6;'7AR&6X3@5BI2Y-$$$3)
M3D272,7+G`47-L.`%FSGBSQU\C&>\F$G81"1D*->0:LL#I3ZIKL-Q171?6]U
M(WD8D>3"_JS*U\-6'1L/Y-PY7Q)#;V)1PIVC3SWVQ!-Z3?=MA&&8Y3;?_NFD
M_B[,GZ0!9$@O.L)Y8351H%_+.DQ@L8:LS:29X[U67\07Y;I,*TT7!,XF0#AB
MC?(-+FP;>`CS'%??I8*[5+#Z`U%0R-1&%-,!-+:R)_>(QD1/#*==[SRB@,`R44+*.
MP32Z2!5)4D,;GD9AUDHUS/A,?)J7TU!BG(9ZXYA".:950W'ZD"%.'EF+(_@Y
M4?)S(C5Z',KZX$U&(2&2K"U-`0)+F'FC>#+)^^P$GTA4.=E*J&8H8L^_O#,/W*P_M*1'^CZ
MR(GUBY>H3?T;[VZ+-7UQFWY,GXYT"JMU?;_]A;UO[+ZQ9W%;E[HTOJS5)7WS
MWK-3F!+(:CR_UXW:WX0:MW@Y^*I_AY]:*[/_UGRR-]_*I7Q_\'%%45""P9A@
MR?A^2]_$/'&8$+PVC8QE,BXBQ-#H1UUV94JJP+7S)-P2K-`K8\YP+$S#3+@V
M+SL(;ZCYSD&@3HW,821C+/_M>"^H&ERLQV0TXVPD;?6D,M%(0X2:Y+0CD[8J
M96ATA\LD[L2GI"U3AH@G5B8).S;DCK&JK>J>/:2$7H)1UT'-F";K\F9Y"24O
MIP`O"7(=1!?S5^[UL0^_G6QK6++TN:N/OKEM]P<[/X0?Z5?$CFQB7G9%C[JR
M6=@4S3X[>:31XOUHXKL?/W8`Q*-5./#WF4>'M6%=SZ>W_!*\FY?-J6$2U6`E
M/]%LQ!(2J$E$:5LK\+SFK`O:"H2SF$$T,S^1Y#B=H)10%Z44:3YNL8@\D4P5
M>E6S6L+2(3.8;]EN7H1GF6_^M<0P8Y;2C:91)RYE'*.,8Y1QC/Z?N%6Y3J?]
M!KWNA%L!D#4F<]*3`-@"0_KUXVL^D\F4N6:]$.4?4!O7P/%/GF.WVA6XDXKP
M(/(BA8EVA=;,2;S'+7D]O=*FS*Z,.0V+`OR_Z.Z_&.;.,\X?N^=?>>[V.>[L^_.
M]MF)?;^<^/PK=B!D-<0ET"9,@3#*(!3#@+;\B`H!VM``'0A8`IU$6D`C,%@[
MB1_9)I6R"`CP!S1#:SO6433:;A.B1=O:H2W2ID:E6Q>S][5=R&SY>>]]9276
M\[S?Y_E^:LK.,`F7LZ2K9+T>7GPEG[*P9JS!22QP=ABKG)N=NS&[X72Y,CY=
MQYQNGU&O8J)B^&";)(4,T'5D-T17Q@N_`G1"S;CJW2X=9&SDI'_S2]*E5&:Y
M,D)@^9"8KK^=)SJ(-PB""#24;>=M=SJ6IUT-,?0-=H`&-+JPM#^++BRRGV,6
MFBNP=XQ/6*5?7?[1961%M-K/OOQ0PZ5#H8EBN5P_RUV[AL"FLT)?TB/GWF@^
M@@OJ&^9``$M`/D-K6>?XI8$-]V^]=WO'H9\^_?E[HS04=F^YQ=LZ>L:&T[7GPW
M*&M];H@>H=]UVF8Y[+)F=\@U
M47"YI'0'.#HK;@*4,^"O>RCR,E=4
M3%!9Y/^O\4S`I(6(X3)Y0PD$`Z$`01IFF-568M62%:2BO(IB%[;\R8U'ZZ/L;?K=A
MRZWOOU]6^6P*X%2MF59B.&%U19KH5$YL>
MT1T.319F?PO6+X+I()T_J')50O-S7`^W1>OG^K2?NRYPU(]GN<]LD+<*S,,.RYE;U6MC3`/@+E^?2W,^--FM[G3?,/\P/S4)`W.#)MYLP.>O&J^95(#S\,$;>0*X_Y`
M^\18`3JV'`??S;D`HH,)Z%(>-H@"=+TEL3E@1X.K#ST4KEG(%#4-QN1R5RU44:($(O!%>.$7/>;#\"N/3.M)H5S&$;5JA_;OO7UT$_J
M:NR&(7'5@H>>^07X?3$!.ZD%:\7"F:#`3EH/%N9?&Y2!\*S2@_>D3_M^$;]4
M?2G^6^IVXM\IIA9,`ZV@35F(=RK/XGWXGO00>"=^*_Y9]=_4+ZN_4K]*\ZT.
MTPCJ>I0-AVA5=8=#7E5+&]6$CB7#Z?H89E3K03B8O<&D8=!>/2E"*<22#@?M
MP,)<&`_?\1\7;(&L7N^.UD3Q:,+-^C/9$6`;CDQ?[+.LN>,YI%RP%!<[EOAGE)8F718Z&G;`U
M?2^!FW$KW:1VQOOB'U%DJ;7"(,DEW($0])`9IT1*#$3:T0D\H'B>\DK9RHX8
M>'MN][;#Q4\GYBUK4919!?R5>Z/=^R?N[N]O?7+/`=`XM:._=?%1_$8B__1K
M1Y[I-;1IZXGN]4VJL>!D8>41(?_"DB6;!749NHA)#W8.TTQ#<*2\DI75!==\)WQP!FAEJJ<]T"?],#"@[`LZNO@N
MH9?O%?;QI\DAUTGY'?FZPI`29K9(CP=W2C^0^Y0]P0NVR]5,REQ3LX7L4H
M?9Y+;JJ1Y04]A"W!0P""F#'R,_XP76OBY$L.M$&BQ/\8`/=)O`%(SU%T&F
M!$TMB_.TFZEA<*;=[Q]'A1XN/XUUSN4*7Q:0UT`3NJGI'^-02&/C8QC"S6\O
MZ#V;<<#RZE*0=#EA81TT1>.D8KHDQL#((`Q5/M;`Z(#=`.5BQE`I06$C!GTM
MJBO@-1.-.R1%`56E440M7"\Y-`1?Z,B^*!K_Y^".6_7-2Z\=V_EASZ;[)_]8
M/'/A.N@<'7A]J3^+WYXI'O?BUNZW@1/C(R"I5=GZ*DL
MZI4*U-_&DOXL4)5?&M@)$Z^AP*%@H;#:L\:WVCA:-U)K7\VOA9O#_*!TPD.N
M8JEP"%-51SC$JEHPZ69Q=8JB8`XA$72':D)X:(8C38$.Z-)>CD\_5^[T&Y&$
MSIOV$MZI,*4PR>?-]K07E'9CG15)04@M)W892NP("
M@H?WX&1MM"X:BQ+DHQU.2J(L^D2_:"-UP^),`\10T`(P1#U!%"QX9AFB:DR2
M4PR]RFI"V^P4E.**6)!:9#0XH6,F-8+WEBBC<2K/H1FJ)!YK=M-22U,"7_[%
MH7.7EQZX\LKTW4LXCY(]O?BE[SS^7*MAA,6UQ/8U#5%CYOSBR(V!?QU?'G#:
M'GQ]YRF3<6\Z"F8!^[&M\1JHD#H,L_T'UJ,>S,V/238_C8>SZ6QW]M7LD/RQ
M]V/Y,_F^3/H
M3RC236V@<"J3/6-=L?"4U6S-LY9;&ZP=UH#UNN6P=G/_X[O:8YNZSO@YQZ_K
MZ]CWVK$=OZX?]_I>/V.G<>PX?L5*,!.OA@@Z)A0/J%1>A3;)$*G&V+**$H;:
M%:V36-&V9FU%6_$'3+0C2*Q+!;1LW9M.VJ9-S?Y8)DVC?S$FK;79=ZYMR#)8
M%-OG^%Y?W?O]OM_C2I()(-X_$-]H?W2V&E[7MK3$5!W^T!2V4D`S5BE%
M)"M-C^I6T_(U%6@U#P'4E'NP(BGOUP_QBM*U:?>N[H'"^+M_[9?+GQ[H+88]
M%I..]2HCO=JG%6'?SOP9;;/Q^U>_WR@<^G:F^>QD?_#"V\UQV6$17;LU7YEP
M2-!TS:=?FO7;`-\4X'L6\$WB4'6306MDDQK1M-ZDT^OT+)!!HV@55C$I76.:
MM>R8:3=[F#W.6KX<.Y5Z1_L.^[[V?799N\S>T=UA68MJ;T)0<(BB,IY,+I!H
M=7]$4#@&,Q1DH\`@H-XX(1_J!8,_*(1%B3$8%-(U9B9C6/F)C&7/A11.(6SF
M+`$+L50$#@5`$RI^O^#NM3N2T3")XBC,&&&[11BB7\@H*H>)@^E-7<$$`E89
M&T`K$W3HHOB4;I>HZY5NJ1NL(LK#:`"HEEJXPGZ97U9/:F/US_JJ3\IUJH4M
MR%3,*`=;H#E6`*;\%UR9R/;IL2Y)ZG[KR4@/D+%1;$%%B:E])F;YTL'2JP#4
MS=SLP<:V]XXT=U$Z=E"BZ^:1;QSSPAR*MMQ=TH=U!U`&'Z@Z65X7ULB6V#.!
M$X%CX6/R"[$3<59J>U77*N^*4^\:A<5>PU[3C&DF?%GSKG9!?RE\2;D49]=(
M:V/5^%SL>%SWLG(Z_H;^-<.;INORAS'#>HN+#JF3+NR_(;@FQ!Z8R:IV^.9K
M/=AZ0^@1IR5_`6P.HIO(34%$/3"V<,&(E132]&U=`2=TJ;:(2YI0XC)9C1,+P0
MW_&V!-5%>`&IJ!#7J!#W!^-ZS@3EER-A$&W"49960)\2,X&.!X?1QV;,0L
M(RYH'D%,3/4[D%L:85774_5V2A5<"K>DA,'T2,?S.@B#]X$16O5:F`,`ZBR/
MJ!RW//`Y>;1Y^Y7O_&SKQ"]>>&1/SEE[1"(O;2CRQF>;?SO]WMVK@VLQ6-X3
MX\GK-E^?'0Q1O/;S<\U?_N!J\X\G'7;LV9Q69%D7"'>O;RX7BOO./7GR'.['
M9WEF0VR()A;(IWH[\'44#U=MHR+,`9`4!484756;:=A%ZVP9]`TC%^^:=VFH
MJBZ0/UP2^X-"7!0+]'`WG%>HPCE<(5`X7]",!(4"G/,CT4"O8+AW!0-OF#=H
M<%`PT"M(UB"%/=:Y0DR]0BP0.Q_32*#2<$[UBU(F*`R)DAB*CB)*W6$(U(9X
M+.9R]9#"T!##&!@)C?`C9*32SV4P_.\`W3V*:CMKI%K;7)NO7:AI:T$.!S#!
M%2OB,?QOYC%_=$WY<-NOI]N&79^ZT]F@SA!"WVU#H-"-DMH;B?;[BJ4JQ#S5
M8OPP`COH$$H!#OW/-ZM_0?I6,YM(G%?6R5G6076>T.>".L.QBB![U>86`I
MA"=#BR'2%ZJ&=H1F0Q=@HU?K#H5.J+5/=.H]3/E"=1%BR\,+2,M%/GE0>:!L
M\@,JH#XS/*GS[E\TM^%)XVA;E6T]I`*/MT`^JKHDAX,CF(2RG%%!,B\3N<*^
M8L*F!?SXQ:0`_8YW7[2-)5Z\K,H+?^?64)H'G5?O&Z(;B(EZXRMODV99)3N0
MR_2K'?(YV'&KI]N7K']$?D6T^LWP3$6\ZS(JWUV\*$8'RK3V
MW^6M`PQFS::TJ;@.KS,_93Z,YM`9?,8\7U[`/^Y:,%\J7BA_AFSSX&ZIGE01
M5\Q;TEN+^_&>%(,LQ2+'<<54*MW+@;V:&=5;G:+8&Q24"7&PF!<&]1BR%,B$
M8T(*!`59E+@;I(@VYVHP14^;O+9V#.44F3H=!S^@]U3(N]W)\@"=\)3#OQWYWJ7R%
M;%6]V=W2^ZE.K%J&3BJ5Z*L5HGJ&$@EF;E,J4;<0S_
M^8EUV6*C,AJ9:/ZTW[5F0V/KB@Y^K08-W(7_M2_AW$:LGQO_EJ;6./?5WJ`L
MZ_W.^"$\%V]^<__`JNZV6T+N/M8\_]HW:/&5;`[<^;3C2MJ<[.HLMLEN7=.'3BU+XW_U`P_@.7S>X%OPO_%KHF\TMY$K`%N@-V/LS+.L[&=7-V%$:R,:=?*8ZI@J"(
M[2H&"I0"Z:"0%2$WG:B.(L$7A,Z/^KQVG\^+@6_71#\".<$GR:`/2B7
M!:]O`=[*NRO3!^;B,F35_.-SS^@WE">IBZCPSF0]P>BZ10]
M9J7'4DLILICZ=8JDW(/Y!;SU8@C4=0$GGZ.DJ*OB"JQ(3"=H+`6`W#26NE2.
MM%A"YPP@"3.72NB`%@PE"%TD7(E$6X_K]6F(JC!?``<>[EM8`O?K:7/"F5N)
MLN8_;%=KC!/7%;YW_/;,>,;CQ]AC>SV/G;'7PZX76&]BLF'=\A*O[B8JL$MP
M>90`!418VK`42D-;$B!4+8\6[XJD+\&JM%(%9`%#TRB*$$G3J*6DU=*'4)HB
MT1]8HA):$<'.]MRQ%Q&IMN><N_&/N^;[S?=?Q=BI;Y[NIL47JB0>QB7LN
M=D79:@^T?BE+4_#0I'+XCXYOPZDJL1??>)J59[:#H_>C1OO3BC6]=QNB-/
MO^!8N7%F1B=,F)K\EZL"9Z[@@?."`//GP7FV2%)ID"GRR23')U,ICIU%9$V"
MR`Z5FI7RJ$2"1)>`XN$52@&?H?!)$7.IU&R$P_"WJ82*@EP`XY2H@-+P($J,
M>CD?IK(!CL6K6+TB)F)*
M4]@6SS9X!P)MY@'GWJL(;L:F6,DT#_!=>Z\>X*]B<@IS^BXC-'FV9(8*B..Y
MI]`.>;NR3]ZG'$5'N"/R$644C2JL4W8J.6>&5D,YRA%A-:"V_CFK^B[PWG"B&[9^4O()L6[D#82Z477R7F/%
MA;NYZN2=MV`/Y+^?#XC=V&X/9)K]&!-CZ0$T!ZA(D+1!O3/(L,N`FBU@BWI3
M:Q_`[RY_1E$?;=DR3[;2V_M2YA=GNY8\ND0MV&W.HG2=UGK6/*PXO_;H%R\_
M#P>\(QE*:?'Z_:Y_2(6*9$1V6C*MR&^(;G+-9G>3NS)<\2>=.$F7D\98<.G
MNXRX%),H-\<*.KRGA(XC7JA$-U1!)J!C-DE!Q"%_5$>2$X)I=L'7/LB9K?
MP8#R,K3#J-P$:B;A]:
M6<3P#-7+K&$H9J]NO(TI6X-XZAJD_-A'C)=MG]EE2\,:7YLR"0#C;Y::TEI8
MBHEQD7)K826/TQ($-=*(N$8*_U`]=_`6%19.#?E^8YZ4WQ3\6.@IINE&!?LH+,01M"_T5W:@6@M(1:"#N(WW]*G
M=7BJN'/4,=U=<%7QBZ4@G;Z!O.X50B">R6Y5""3AS`@D6:3Q&J4M#4OO9G&6
MC%::%3JR=:ECP](LCQ-87GIBSP6R)4&`21[6^F\#,KO&:_=K9G>-$'L1R+5<
M!^H2`M1.QE``J'%=-^2HIN,F)J&C&`_!$&"I1M(ZO/PD"XFA)4[4<7,(`C0`
MWT5^CV$%&!V8JE%Y`,!:XED^6(S`Q0%*0W"A.A++KB@!6P2L2'/&`"@B1281
M/P'$()\Q'!^WO7PK-P$9^PWK.VC:Y[?L_RRM"R/4O7
M,*^^YGW6N'BV`^_&;MR.CUM;K3];#ZS=+M=OW[1N6:=^^?+73^/%>/ZQ*G04
MT:%_`TQJJ!7O*G4ODW9(0Q&'5XMIBZ4%R07JVN1758^`7,C-NWBWLSV_,3&8
M&%0/:A\E_J!=SWN'HW^1/HL]C#^47'DO4Z7^.FJCUBX(<*$H%0EX05[9E-JJ
MJ6%-4U_1#L-AHEQ22>Q3;ZOW50>O]JK75<=U%:MB+JEJAMZ6J.)/2Z(&]JFY
MM2T$L)=O*(JJ@E3W@GG%KI*/03D^1^5NB54'58HRS3K(C`8+,$POF?QMSUZV
MW0=Q@CS@GDQU?J)6YLF8KZ]JMA(NBJ371!4Y#&&-A1+@;)U"^3L6][D9BM
MLZ!)Y,RTL!31XT96GQ;.Y7%&@F!&6_.X)6;DD92`1FAT0IT?"%=?1ED@.IHI
MFEZFF(R%(K-Q?2R78HB?$2,*=@1M7TI81`;VF%C48)&=X[>/
M;)WW+3R_E&CIM)99B_N+AU_O.?IS:K.U__-\,O?2GA/K9J>M0G\T[="IS=3P
MQ&]FOKKEY(^(,ML\^8E3`68IXM92,=:^HF50<;@#V,=Y3'=[C!/-5L[D6X)Y
M53:;IW7F.LV-+8=:#N7.=%1S5SI"Q11:2:4PKN*%I0A:R76F.ZG.,]-!1Z^4
M4VDYC=-5Z*[Y32N1Q$N4=";28G)>@Z,Y+DDG.>=.;F?+2>XT?8&^RKG-%HYV
M:J["=(=6B/AZ\&K\$GX%_Q"[\`ID\`9E5#%?"@C2,X#_CFFYGRY
MKR0[:`='Z2V&^3_"RSZVB?..X\]S]MW9\=O9L7W/77*^L\]W?HM]=AR2.*3X
MPCLHD`!M&2`+]M+R5F@2*&U!%-1"HZ*NP*2Q29,F0-LHJ&HCHD&2O56TVE"U
MB4D;$O\@=6(O=%I9I8:R"9SL=Q?#Z"9MB>[N\6/+DI_?Y_?]?;\[/-L#^STO
M!U[/',U]._".YR>>CSP?!7S0T!NLL#0,::E9A7(EF`B8ZKG_2-BI)O24MK\V1IXNRV!/2
MM+;[)X>.EK<=F3R[_LZ/%RXP1EO$F(_>.=-[X=JN97G5*,2??&';MM],H@3H+1$[$I9T
MSN="'4K"A)9[/^$LPH+"-UGV`=20*!*72+@5*0!YZ:8H/HA),BNFD4)Q`1<:
MPE:1LV8"_+7LIMP+!(Y@A0R2$\1!%$[&BCPH'Y)/R$YY"F<1H=X=MS6<^V*Z
M-MS+P67%SUJO/77KO7#J?T-<';IE;@$Q9MBRNT$X5#A!];_BBQUKU"#M32JK
M%^N;G^$7]>3K/7D[>W[MC07K>9WNGSEYZ/EXZ/Y?_QU*G-&>-:?P\]:)%&<_
MIG\`)U+`#O,,"0@)BC2E$EGU@/I-_UOJ>^IOU%G5#9^CD(/#',4YAB`4'8H>
MXB?]5],WTK?3?EJ-^+F$$M?54GQC@KT2OZM2/_)?\E-E%ZM(.)&0%8DD$EFE
M(*%$,FBE&)7P/(;O].Y(NB&%*(=DO%F>E2GY8+%H%@>+0\731;KH"K`R2[$+
M,IG!+,X>-!KIQ+(J#_W*\%PZ^71.N'(/!2D13[L#3;JN^36/YC)0*NU3.7`K
M<7?*:Z!``F[6$=L3JB%*PR,PH$::K:#(-&)B0WQ2EOI8VW9\9&`J03JP58DM
M4C]5!^8+7:]LV?V]5;J47XNOMU;Z@[[J]._&MKSVG&@^3?=K\9Z]]6V7]JW^
M^KLWJ,RFU3`CM4)!65>O__WW%PWSZGGJNR]4$MBJ!0=YX:*=!J5)I`*5/6*R
MX[5T>R1L7(!":
M$[-OFIT\RR@NQ(*79=D\#RW)1VB&2?,"K(2(BV6<7EH`2Q=QT30;]WD1^$BW
M"OUP.;^B0^5Y$4WA`N+QJV9(\9JPM\6+O4)"?2Y^?!>9P&U';?^8$X55]3I9
MO>29Q7_.V2#W]H;X"@9A`8D9757(6=."'BT0:U'[,"<29,?%Q^^UN<3C\\83U8&J&/1KR@\5\!Q["U&%3FW#,KB7=0^>7_:V?G!8K>F10-2J+2S
M7J,V[%HIQ@K>H&;5(S3[!_8.U*-$,>;X<_,M0*LETX3R;(5>$3X9,,6R&8
M;>.1ACK10/OF]L'R3LB<[5S9+`^6A\J'RR?*I\MC9?<5?*W]%OH]Q[
MA+WIH^[7A-/H7&0,?8#<1,@`H$:Y@E8H2TLC:`2[$=?"50\C[!8$%BRF(!!1
M='E0"W3AGYQ0;W!#02K(AZ2@DHY+"H+.]`8D3A9!FTK9HE0RG1DG\DS,'ADG
MGB9(%`?,[1GH1A&Y.)@.KGPF'GJ"VCC].CPV/2.JBT"`(6?A8UT.(1BR*
M0O\!DNM+1#W&5@[9AJ7R/QA[_,7=VBCGZG4=_'"4Z\6U7`.[K.+V=2CI!G;@
M5VK#PV@$@F&$:9#W"#[&FG2X&8:9I1+PKO6ZN7F.Q'GL';TCS%1FUJ=FQF;>
MTF86+NXTJ?YE1@DW7>\NM/=5J9-+8A&2OW=3Y;H'@$I'4O,>OW_&L>/!*>>Z
M"F]AXA-]7?X5:LG%A:\:@;%+],-J
MG_4%PUPX)A0=`>Q.!0P9MSAE@RD:N!23%7\I%E#\50X9N,HQ?E9BA)@H"2=2
M.&6DI52EVB-5:.R4:$0PX7B)Z`K$A>Y2E]1=E`/(2=MW7:AR7#I6"L=B)6R\
MZ&`L4?5N"+2X82X_S813]:Z4(?4$1OKORQ7I\)2IG!D0!+/2G=(I
M@3"TR^R;P-<;)&6!I$?88,OK3$_7IZ?G<`K:%`$^?N"G!MB`?R4Y>#YZY_^1
M,G?'7]H+P-\<&<@RLV98YH1`U6_?TO[F*E9"I(KG\@R.6H9UGH5$2D\YYL3*
MMK+-L=7\;[:0&=]YT"!]7?_\EJM:$3ZZO]A'TSYY[RMG04J#.)G@*[Y.WCN^6>)_#G\Y=GQ&V.EOKU8_.!("8IAORQ
MM5BK[\E([1[8\:F%;^'E^/Y!?[R5U32M-B8U%G=(JZC0P8O+Y`J.-C`Q<,>]+E3&!O[2`@02(+16DJ@'NDVM8DGY7G]_O\OM_O3*F*?DJJSB'3`3QPX$BOD[4)]+%Z4XM'
M7VJEDOCTHOHZM7G$137[/VL'GNX*.%'4[DEK+[:'DB_-_=&]8FG7K'YU+@B-
MWMQ'6WM6X(?KLU+QT"$'"$CLX5
MP(GCS3Z[1POG!XX]/_\Y\6?BUU@SEL/7*BX=3616IGZ0_HE^-$WD
MD4U^85WZ2@9\7W\V<2%W-7$K,>7_)#&5_EN"2NL[]&L=:YG.]"9F.WD,&TV?
M`5?`%=(DZ\'>_`G-SQ)O-VNP?#'_=7=??I`Y[AH#9Y;=`/?R!M)=S'\[2ZPA
M<9?=A6?1MWS,9!YD05(FH>2(\48Q+HCQ:$X^+U^7"8V\7.Z67Y-_))^4?R%_
M*/]6_I-9;\#?D'DC*2/K),$DX[
M2;#F,"_"-T:W2]DU>'($*TD2SBI1,65E>78K.\">9,?8&ZS^+^R_V"^@CV<5
M"YUB<=@K1FN/*[D^_)X_CT7I:W/@O;M/F@:G@K8G>U,E,1/RK!P#!3*@WFH`%^C%)UKQV"X.<=3ABT]5V
MR4F\\_P;Q1?'09I1&E?$O'7ASFSAV<$[WSHXRE@,3K/7QR7[5Q8W&W9G(WY/
M(GEX9.?Z_O-'OOIB2[3>SKIXL;&YHTM>LW]5I2TV,G=,\=,"N[9]W3&06;UA
M:`_NB=GL"@V::(4NTC?I25I+>QI[*B@)EBI003Y`)NF2QU^@QU$L;5#7
M]QF^@"0$A<2,1)<&15'=&JUMC2YLC3ZU]?'B:)J&J:@J$A8:2F*I5F.OH#%K
MA5#8YZWSXCH*2K6@"41`O):]JR'WD00H?T@P9AO@AX;AV)*2#8EDI]0(;*C$JN%I:
MF%-3JM3!6<N;\^=_5V[,J,!O4&4P0&=H2LK=S8OC;3!
M$#4[NZH%N%,EE2>D^H]8@:<*':0.!+/6K`A;?3@RCA5JL5.@=YMD&N,Q6`
MS`M]&UD0>-*0.T'E!T^G6M"9UQB+H"P46/0;R:6$PK=-#%R_M_W5J:/G.UJS
MW92.8?BF0.J9SI9US9L>LM_;#;RW;AP=^_'FS,J>;Q0\'KG[Y(&'67$)8F4]
M9*4#LL)!/[!'";YE?L_\@?FJ6V.WMY`81W,XPR
MWFRY2HH'3#"?\N-@J^)A=OO#3CU\%59+)#&,I:$PQ]0#M,`3LH+U`+\(`/!*
M-%DZ)>$2#Y5>0;PH+O311E6K(/(&F,1`S.T)"4,!U]G!C)!K!=1:H
MH.$(%C/#BV#S0RML%554@$I)3*5$*IO+CG*@'+LHW91T9[ZNMCLH2-._NUW
M?GDN[#A\&)$6)J`T:2((L
M:1O<&%CE'@>-EWUAAUX[#KA+)B/E1M4UPNJZ%4\@Y=Z)(8)0L2'VZ)R,EA1:
M%=:6QKQ2H!#8&G@0T`0:HE;`0PR3]`)YZLK9:VNX*:5VC0FVTR0-:(]_@<`2
MFG?=LZ5IQ*`HHF81Q9Q*XT0*)/U`LMX&%Q79^IS1TOY+[6&N@:
MWSW9OW'VW)&[GP8%5S#ESX)'UU[Z2OMS[M'A4\,W[@/7/TZ_\UW>+O>.!N%1
MM&$8T:;MAX2*RO.*!'0./H1;=9B>U]%Z34S$`(C::+/)9(<#7Z2MIA"OGPB`
M$*^#S/IX7\%'C$%KD@SON3O[]N[.]>Z,O9Y]
MS*SML3>VU[LW=NR:D+BNJ@!-V"A*3`1M:1J'U$A1(;2D22DH01'M#T`-ZH^6
M'RA6'()3'G5$(P&J5`M$2!.D1,*J0,(0)),?M.MR[JS3I&!ISKES/'-VYL[Y
MOO.=YTMP"?1CKTGCP0:,AN8M4S!A.D,)MFV59,I**'J.@L^=TPZ)F*>FWF=U^E?\/$@,?\5_W'_&?\XOFSJ:Q;M)EBK[6P!OM<8C6*0/P!L%_.;ED$<`-6&5!6D=YT?"*D#_0-Y
MZSZ),D9MMRDQ&H_V1]&M2.=G6N\U!B*G3J$_7#PVOWW4&A4=?AS/Y/EO"1.M
M^;V)+D'34*JR@W]Q_X1Y9OGS6\IC@UE/.B1%O5)EX/S\?OA,W,Z-2>$F(*G"
MC7([T#OTD2[LDQJEKI.>4^6S^D\=EST7]$O&'>W?V[S>?L^`."2.=$X[W0!;
MW:.3+62*?-M]HO!]S^OEU\=]=$H;RP;T!.:$89<6J>L!TV\K]@XH]CJ5A^JT
M.V_5J4+`1!-6I8[8OQ?EA%5?$APT&HDPB$8RU5?\_HS)"]3LM80E(4W]4,&]
MKYBNB>Z,-&5#36XP3[WPM)U3:&HJ,;STT8I-O8%A--R7F'/Q:(ZXD,FZFR!2
MO31&X28P4L,<0](8&>/'IK*8!;$=Q$C"!/-X27#22+=5@52\A22+6+Q%L]W%
M$OL]`M$2[=&M$A/,4NE0Z71)F"FME/C2_$Z0R[:2`MRNUMCWQFM-0/&F;34/
M?P@ULF:'B\4VD&NM8HV-;FM,0V]JX@@E6:OXV%K19H!B.WJ9J\-K=\'V,2;.
M$`MXF(EJ.-"F9T=HR*XF4,!%!&-;++XI?/)L@(OU5_OL@(O5%"/M:MLPV]_G
M:E_39U>:T&[9FV?=_`_1R&)O.''HK>WB7'FT6O_)[Q\^_,5=WWCC:RN[)_8^
M]_B1%[YZ>Z&Y?7CFX<':3+GSZ,'LT#.OO?2JE/JR\(.G>GL&1V;//NHWL_6S$^E:1S$\]5>L]]Z<7?UH\N?>_04Z\N;JU\\*\0&>A_=/MX
M,J3$F**:Y#C'%NCY)73K,B=^=.>";\BPT?OI`P2?X,>4'LT
M4E)5E();N<1!ARN7S0:#`:^;>)"G$`G3[-9&F$X\9(7IZ$"8CL,Q-`PGE5XP
M^1XPQ3*8G`8&JCM,<$MH=,MB\9MJ=!`(?!M65