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 and nine months ended September 30, 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 after 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 identified an error in the facility restructuring charge of $4.3 million recorded in the three and nine months ended September 30, 2012, where the Company failed to reflect a required assumption that an expected subtenant would absorb common area maintenance charges. The Company also identified an overstatement of severance costs accruals primarily due to an incorrect estimate originally recorded in the three months ended June 30, 2012. The overstatement totaled $1.1 million in the nine months ended September 30, 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, stock-based compensations 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. In the previously issued financial statements, the sale of the consumer business was incorrectly included in continuing operations.

Adjustments to Condensed Consolidated Statement of Operations

The following tables present the impact of the financial statement adjustments on the Company’s previously reported condensed consolidated statements of operations for the three and nine months ended September 30, 2012 (in thousands except per share data):



	Three Months Ended
	September 30, 2012
	As Previously Reported			Revenue Restatement Adjustments		Other Restatement Adjustments			Discontinued Operations		As Restated
Net revenues:
Products	$	90,878		18,806		$	—		—		$	109,684
Services	36,297			4,626		—			—		40,923
Total net revenues	127,175			23,432		—			—		150,607
Cost of revenues:
Products	44,312			—		(5,955		)	—		38,357
Services	15,107			—		1,555			—		16,662
Amortization of intangible assets	634			—		—			—		634
Total cost of revenues	60,053			—		(4,400		)	—		55,653
Gross profit	67,122			23,432		4,400			—		94,954
Operating expenses:
Research and development	23,099			—		108			—		23,207
Marketing and selling	36,629			—		(2,688		)	—		33,941
General and administrative	10,542			—		363			—		10,905
Amortization of intangible assets	782			—		—			—		782
Restructuring costs, net	12,674			—		(2,843		)	—		9,831
Gain on sale of assets	(206		)	—		206			—		—
Total operating expenses	83,520			—		(4,854		)	—		78,666
Operating (loss) income	(16,398		)	23,432		9,254			—		16,288
Interest income	49			—		1			—		50
Interest expense	(404		)	—		(1		)	—		(405		)
Other income	37			—		—			—		37
(Loss) income from continuing operations before income taxes	(16,716		)	23,432		9,254			—		15,970
Provision for income taxes, net	672			—		522			—		1,194
(Loss) income from continuing operations, net of tax	(17,388		)	23,432		8,732			—		14,776
Discontinued operations:
Gain on divestiture of consumer business	—			—		—			37,972		37,972
Income from discontinued operations	—			—		—			37,972		37,972
Net (loss) income	$	(17,388	)	$	23,432	$	8,732		$	37,972	$	52,748
(Loss) income per common share – basic:
(Loss) income per share from continuing operations, net of tax – basic	$	(0.45	)								$	0.38
Income per share from discontinued operations – basic	—										0.98
Net (loss) income per common share – basic	$	(0.45	)								$	1.36
(Loss) income per common share - diluted:
(Loss) income per share from continuing operations, net of tax – diluted	$	(0.45	)								$	0.38
Income per share from discontinued operations – diluted	—										0.98
Net (loss) income per common share – diluted	$	(0.45	)								$	1.36
Weighted-average common shares outstanding – basic	38,859										38,859
Weighted-average common shares outstanding – diluted	38,859										38,890



	Nine Months Ended
	September 30, 2012
	As Previously Reported			Revenue Restatement Adjustments		Other Restatement Adjustments			Discontinued Operations			As Restated
Net revenues:
Products	$	333,841		$	74,641	$	—		$	(46,101	)	$	362,381
Services	102,905			9,948		—			—			112,853
Total net revenues	436,746			84,589		—			(46,101		)	475,234
Cost of revenues:
Products	174,794			—		(6,707		)	(33,265		)	134,822
Services	42,149			—		5,253			—			47,402
Amortization of intangible assets	1,928			—		—			—			1,928
Total cost of revenues	218,871			—		(1,454		)	(33,265		)	184,152
Gross profit	217,875			84,589		1,454			(12,836		)	291,082
Operating expenses:
Research and development	77,474			—		8			(1,554		)	75,928
Marketing and selling	126,017			—		(5,609		)	(2,312		)	118,096
General and administrative	39,086			—		656			(1,138		)	38,604
Amortization of intangible assets	3,499			—		—			—			3,499
Restructuring costs, net	28,683			—		(3,971		)	—			24,712
Loss on divestiture	9,745			—		—			(9,745		)	—
Total operating expenses	284,504			—		(8,916		)	(14,749		)	260,839
Operating (loss) income	(66,629		)	84,589		10,370			1,913			30,243
Interest income	164			—		31			—			195
Interest expense	(1,124		)	—		(31		)	—			(1,155		)
Other income	69			—		—			—			69
(Loss) income from continuing operations before income taxes	(67,520		)	84,589		10,370			1,913			29,352
Provision for income taxes, net	2,097			—		833			—			2,930
(Loss) income from continuing operations, net of tax	(69,617		)	84,589		9,537			1,913			26,422
Discontinued operations:
Gain on divestiture of consumer business	—			—		—			37,972			37,972
Income from divested operations	—			—		—			7,832			7,832
Income from discontinued operations	—			—		—			45,804			45,804
Net (loss) income	$	(69,617	)	$	84,589	$	9,537		$	47,717		$	72,226

(Loss) income per common share – basic and diluted:
(Loss) income per share from continuing operations, net of tax – basic and diluted	$	(1.80	)									$	0.68
Income per share from discontinued operations – basic and diluted	—											1.18
Net (loss) income per common share – basic and diluted	$	(1.80	)									$	1.86

Weighted-average common shares outstanding – basic	38,767											38,767
Weighted-average common shares outstanding – diluted	38,767											38,819

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 nine months ended September 30, 2012 (in thousands):



	Nine Months Ended
	September 30, 2012
	As Previously Reported			Revenue Restatement Adjustments			Other Restatement Adjustments			Discontinued Operations			As Restated
Cash flows from operating activities:
Net (loss) income	$	(69,617	)	$	84,589		$	9,537		$	47,717		$	72,226
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	20,905			—			39			—			20,944
Recovery of doubtful accounts	(101		)	—			36			—			(65		)
Non-cash provision for restructuring	4,950			—			(3,491		)	—			1,459
Non-cash provision for allowances related to divestitures	1,041			—			(1,041		)	—			—
Gain on sale of assets	(257		)	—			5			—			(252		)
Gain on divestiture of consumer business	—			—			—			(37,972		)	(37,972		)
Loss on divestiture of consumer business	9,745			—			—			(9,745		)	—
Stock-based compensation expense	7,074			—			1,951			—			9,025
Non-cash interest expense	220			—			—			—			220
Foreign currency transaction losses (gains)	1,211			—			(2,830		)	—			(1,619		)
Provision for deferred taxes	823			—			—			—			823
Changes in operating assets and liabilities:
Accounts receivable	28,201			(609		)	1,484			—			29,076
Inventories	16,995			—			(3,793		)	—			13,202
Prepaid expenses and other current assets	(2,705		)	—			2,821			—			116
Accounts payable	(6,247		)	—			—			—			(6,247		)
Accrued expenses, compensation and benefits and other liabilities	2,351			—			(3,616		)	—			(1,265		)
Income taxes payable	84			—			627			—			711
Deferred revenues	16,282			(83,980		)	2			—			(67,696		)
Net cash provided by operating activities	30,955			—			1,731			—			32,686

Cash flows from investing activities:
Purchases of property and equipment	(6,659		)	—			(292		)	—			(6,951		)
Proceeds from divestiture of consumer business	13,309			—			(1,869		)	—			11,440
Change in other long-term assets	191			—			(264		)	—			(73		)
Net cash provided by investing activities	6,841			—			(2,425		)	—			4,416

Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock plans	160			—			634			—			794
Common stock repurchases for tax withholdings for net settlement of equity awards	—						(634		)	—			(634		)
Proceeds from revolving credit facilities	14,000			—			—			—			14,000
Payments on revolving credit facilities	(14,000		)	—			—			—			(14,000		)
Net cash provided by financing activities	160			—			—			—			160

Effect of exchange rate changes on cash and cash equivalents	548			—			694			—			1,242
Net increase in cash and cash equivalents	38,504			—			—			—			38,504
Cash and cash equivalents at beginning of period	32,855			—			—			—			32,855
Cash and cash equivalents at end of period	$	71,359		$	—		$	—		$	—		$	71,359