
2.	RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

Background

In early 2013, during the course of the Company’s review of its financial results for the fourth quarter and full year of 2012, management identified a historical practice of the Company making available, at no charge to its customers, minor feature and/or compatibility enhancements, as well as bug fixes on a when-and-if-available basis (collectively, “Software Updates”) that management has concluded meets the definition of post-contract customer support (“PCS”) under U.S. GAAP. The business practice of providing Software Updates at no charge for many of the Company’s products creates an implicit obligation and an additional undelivered element for each impacted arrangement (referred to as “Implied Maintenance Release PCS”). The Company’s identification of this additional undelivered element in substantially all of its customer arrangements has a significant impact on the historical revenue recognition policies because this element had not been previously accounted for in any period.

As a result of the foregoing and as explained more fully below, the Company has restated its financial statements for the three months ended March 31, 2012.

Restatement Adjustments

Revenue Recognition

The failure to identify and account for the existence of Implied Maintenance Release PCS resulted in errors in the timing of revenue recognition reported in the Company’s previously issued consolidated financial statements. Historically, the Company generally recognized revenue upon product shipment or over the period services and post-contract customer support were provided (assuming other revenue recognition conditions were met). As described more fully in the Company’s policy for “Revenue Recognition” in Note A to the Consolidated Financial Statements in Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, the existence of Implied Maintenance Release PCS in a customer arrangement requires recognition of some or all arrangement consideration, depending on GAAP applicable to the deliverables, over the period of time that the Implied Maintenance Release PCS is delivered, which is after product delivery or services are rendered and is generally several years. The errors in the timing of revenue recognition have been corrected in the restated condensed consolidated financial statements. The significant change in the pattern of revenue recognition also had indirect impacts on revenue related accounts, such as sales return allowances and, as discussed further below, non-revenue accounts such as stock-based compensation and income taxes, which have also been restated in the restated condensed consolidated financial statements.

Stock-Based Compensation

As a result of the change in the timing of revenue recognition described above, the timing and amount of stock-based compensation expense attributable to performance-based awards, where expected vesting was based on profitability, also changed. Due to the restated historical financial statements, many of the performance-based awards have vested earlier than originally estimated.

Restructuring

The Company also identified errors in severance costs adjustments due to an incorrect estimate originally recorded in the three months ended March 31, 2012.

Other Adjustments

In addition to correcting the restatement adjustments described above, the Company also recorded other adjustments for other errors identified during the restatement process, including reclassifications between cost of sales and operating expenses, as well as errors in inventories and accrued liabilities. The provision for income taxes has been adjusted to reflect the changes in quarterly income before taxes.

Discontinued Operations

On July 2, 2012, the Company exited its consumer business through the sale of the assets of that business in two separate transactions. As described further in Note 7, the disposition of the consumer business qualified for presentation as discontinued operations; therefore, these financial statements have been retrospectively adjusted for all periods presented to report the consumer business as a discontinued operation. The Adjustments to Condensed Consolidated Statement of Operations and Adjustments to Condensed Consolidated Statement of Cash Flows tables below also include a column for discontinued operations to allow reconciliation back to the originally issued financial statements.

Adjustments to Condensed Consolidated Statement of Operations

The following table presents the impact of the financial statement adjustments on the Company’s previously reported condensed consolidated statements of operations for the three months ended March 31, 2012 (in thousands except per share data):



	Three Months Ended
	March 31, 2012
	As Previously Reported			Revenue Restatement Adjustments			Other Restatement Adjustments			Discontinued Operations			As Restated
Net revenues:
Products	$	119,938		30,564			—			(22,796		)	$	127,706
Services	32,201			(756		)	—			—			31,445
Total net revenues	152,139			29,808			—			(22,796		)	159,151
Cost of revenues:
Products	61,208			—			(491		)	(15,235		)	45,482
Services	12,717			—			1,694			—			14,411
Amortization of intangible assets	650			—			—			—			650
Total cost of revenues	74,575			—			1,203			(15,235		)	60,543
Gross profit	77,564			29,808			(1,203		)	(7,561		)	98,608
Operating expenses:
Research and development	27,482			—			(245		)	(777		)	26,460
Marketing and selling	45,927			—			(2,898		)	(1,156		)	41,873
General and administrative	14,638			—			279			(569		)	14,348
Amortization of intangible assets	1,611			—			—			—			1,611
Restructuring costs, net	168			—			276			—			444
Total operating expenses	89,826			—			(2,588		)	(2,502		)	84,736
Operating (loss) income	(12,262		)	29,808			1,385			(5,059		)	13,872

Interest income	129			—			—			—			129
Interest expense	(343		)	—			—			—			(343		)
Other income	20			—			—			—			20
(Loss) income from continuing operations before income taxes	(12,456		)	29,808			1,385			(5,059		)	13,678
Provision for income taxes, net	521			—			2,151			—			2,672
(Loss) income from continuing operations, net of tax	(12,977		)	29,808			(766		)	(5,059		)	11,006

Discontinued operations:
Income from divested operations	—			—			—			5,059			5,059
Net (loss) income	$	(12,977	)	$	29,808		$	(766	)	$	—		$	16,065
(Loss) income per common share – basic:
(Loss) income per share from continuing operations, net of tax – basic	$	(0.34	)										$	0.29
Income per share from discontinued operations – basic	—												0.13
Net (loss) income per common share – basic	$	(0.34	)										$	0.42
(Loss) income per common share – basic:
(Loss) income per share from continuing operations, net of tax – diluted	$	(0.34	)										$	0.28
Income per share from discontinued operations – diluted	—												0.13
Net (loss) income per common share – diluted	$	(0.34	)										$	0.41
Weighted-average common shares outstanding – basic	38,662												38,662
Weighted-average common shares outstanding – diluted	38,662												38,721

Adjustments to Condensed Consolidated Statement of Cash Flows

The following table presents the impact of the financial statement adjustments on the Company’s previously reported condensed consolidated statement of cash flows for the three months ended March 31, 2012 (in thousands):



	Three Months Ended
	March 31, 2012
	As Previously Reported			Revenue Restatement Adjustments			Other Restatement Adjustments			Discontinued Operations		As Restated
Cash flows from operating activities:
Net (loss) income	$	(12,977	)	29,808			$	(766	)	—		$	16,065
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	7,574			—			298			—		7,872
Recovery of doubtful accounts	(77		)	—			(34		)	—		(111		)
Gain on disposal of fixed assets	(2		)	—			2			—		—
Stock-based compensation expense	3,133			—			(222		)	—		2,911
Non-cash interest expense	73			—			—			—		73
Foreign currency transaction losses (gains)	2,298			—			(3,326		)	—		(1,028		)
Provision for deferred taxes	372			—			—			—		372
Changes in operating assets and liabilities:
Accounts receivable	16,857			1,472			(22		)	—		18,307
Inventories	7,731			—			(1,181		)	—		6,550
Prepaid expenses and other current assets	(975		)	—			1,386			—		411
Accounts payable	(5,376		)	—			—			—		(5,376		)
Accrued expenses, compensation and benefits and other liabilities	(12,338		)	—			1,501			—		(10,837		)
Income taxes payable	(766		)	—			2,150			—		1,384
Deferred revenues	13,431			(31,280		)	(1		)	—		(17,850		)
Net cash provided by operating activities	18,958			—			(215		)	—		18,743

Cash flows from investing activities:
Purchases of property and equipment	(3,588		)	—			(1		)	—		(3,589		)
Change in other long-term assets	1,318			—			(1,684		)	—		(366		)
Net cash used in investing activities	(2,270		)	—			(1,685		)	—		(3,955		)

Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock plans	(172		)	—			454			—		282
Common stock repurchases for tax withholdings for net settlement of equity awards	—			—			(454		)	—		(454		)
Proceeds from revolving credit facilities	1,000			—			—			—		1,000
Payments on revolving credit facilities	(1,000		)	—			—			—		(1,000		)
Net cash used in financing activities	(172		)	—			—			—		(172		)

Effect of exchange rate changes on cash and cash equivalents	310			—			1,900			—		2,210
Net increase in cash and cash equivalents	16,826			—			—			—		16,826
Cash and cash equivalents at beginning of period	32,855			—			—			—		32,855
Cash and cash equivalents at end of period	$	49,681		$	—		$	—		$	—	$	49,681