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 in more detail below, the Company has restated its consolidated financial statements for the year ended December 31, 2011. The restatement also affects periods prior to the year ended December 31, 2011, and the cumulative effects of the restatement have been reflected as prior period adjustments to the 2011 opening balance of accumulated deficit.

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, 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 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 goodwill, stock-based compensation and income taxes, which have also been restated in the restated consolidated financial statements.

Goodwill

As a result of the change in the timing of revenue recognition described above and the resulting increase in deferred revenues, the carrying values of the reporting units used in the Company’s original goodwill impairment tests were incorrect for each historical period impacted by the restatement of revenue, including those periods in which impairment charges totaling $172.4 million had been recorded. The decrease in carrying value of the reporting units arising from the deferred revenue resulted in negative carrying value and changes to the original step one conclusions that further considerations of goodwill impairment were required under step two, and, as such, no impairment should have been recognized in the periods prior to January 1, 2011. As a result, the carrying value of goodwill was restated to $419.4 million at December 31, 2010. On January 1, 2011, the Company adopted ASU No. 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (“ASU No. 2010-28”). ASU No. 2010-28 requires companies with negative carrying value of a reporting unit to perform step two of the impairment test when it is more likely than not that a goodwill impairment exists. Upon adoption of ASU No. 2010-28, the Company recorded a full impairment of goodwill through a cumulative-effect adjustment to accumulated deficit. The decline in the fair value of goodwill that caused the impairment was the result of declines in actual and expected cash flows that occurred over a several-year period prior to December 31, 2010.

The following table presents the adjustments to goodwill for the year ended December 31, 2011 (Restated) (in thousands):



Goodwill balance at December 31, 2010, as previously reported	$	246,997
Effect of restatement	172,371
Goodwill balance at December 31, 2010, as restated	419,368
Cumulative-effect adjustment due to the adoption of ASU No. 2010-28	(419,368		)
Goodwill balance at December 31, 2011, as restated	$	—

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 a restructuring charge recorded in the year ended December 31, 2009. The Company originally assumed that a vacated facility could be sublet, reducing the restructuring expense by $2.2 million at that time. Subsequently, management determined that contractual provisions severely limited the Company from executing a sublease, which resulted in no possible sublease income at the time of lease abandonment. The cumulative effect of this error and other restructuring-related adjustments totaling $1.5 million at December 31, 2010 was reflected as an adjustment to the 2011 opening balance of accumulated deficit.

Income Taxes

The Company identified and corrected certain errors related to the accounting for an intercompany loan made between two of its international subsidiaries that occurred during the year ended December 31, 2007. The Company determined that it should have accrued withholding taxes of $3.8 million, and as a result the Company had understated the provision for income taxes in 2007 and income taxes payable reported on its balance sheets for each period subsequent to the transaction. Additionally, as the tax was not withheld and paid to the taxing authority, the Company is subject to interest and penalties on the unpaid balance. The cumulative effect of this error and other adjustments totaling $6.2 million at December 31, 2010 was reflected as an adjustment to the 2011 opening balance of accumulated deficit. The Company also adjusted income taxes as necessary to reflect the impact of the changes in the timing of revenue recognition described above. The Company also identified several errors in the compilation of its deferred tax assets and liabilities. Due to the valuation allowance the Company had recorded against gross deferred tax assets, the adjustments had no net effect on its financial results; however, the corrected balances are reflected in Note O.

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 adjustments of $5.1 million to inventory and adjustments to accrued liabilities, as well as reclassifications of operating expenses to cost of revenues totaling $9.5 million.

Cumulative Effect of Prior Period Adjustments

The following tables present the cumulative effect of the prior period adjustments to stockholders’ deficit at December 31, 2010 and 2011 (in thousands):



	Common Stock		Additional Paid-in Capital		Accumulated Deficit			Treasury Stock			Accumulated Other Comprehensive Income		Total Stockholders’ Equity (Deficit)
Balances at December 31, 2010, as previously reported	$	423	$	1,005,198	$	(495,254	)	$	(91,025	)	$	7,268	$	426,610
Revenue recognition adjustments	—		—		(897,835		)	—			957		(896,878		)
Goodwill adjustments	—		—		172,371			—			—		172,371
Restructuring adjustments	—		—		(1,452		)	—			—		(1,452		)
Income tax adjustments	—		—		(6,280		)	—			683		(5,597		)
Stock-based compensation adjustments	—		12,204		(12,204		)	—			—		—
Other adjustments	—		—		(5,693		)	—			303		(5,390		)
Balances at December 31, 2010, as restated	$	423	$	1,017,402	$	(1,246,347	)	$	(91,025	)	$	9,211	$	(310,336	)



	Balances at December 31, 2011, as Previously Reported		Cumulative Effect of Prior Period Adjustments as of December 31, 2010		Stock-Based Compensation Adjustments			Other Adjustments		Balances at December 31, 2011, as Restated
Additional paid-in capital	$	1,018,604	$	12,204	$	(2,010	)	$	—	$	1,028,798
Accumulated other comprehensive income	4,807		1,943		—			288		7,038

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 I, the disposition of the consumer business qualified for presentation as a discontinued operation; therefore, these financial statements have been retrospectively adjusted for all periods presented to report the consumer business as a discontinued operation. The Adjustments to Consolidated Statement of Operations and Adjustments to 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 Consolidated Statement of Operations

The following table presents the impact of the financial statement adjustments on the Company’s previously reported consolidated statement of operations for the year ended December 31, 2011 (in thousands except per share data):



	Year Ended December 31, 2011
	As Previously Reported			Revenue Restatement Adjustments			Other Restatement Adjustments			Discontinued Operations			As Restated
Net revenues:
Products	$	546,371		$	270,219		$	—		$	(155,870	)	$	660,720
Services	131,565			(25,400		)	—			—			106,165
Total net revenues	677,936			244,819			—			(155,870		)	766,885
Cost of revenues:
Products	255,735			—			1,153			(68,671		)	188,217
Services	62,482			—			8,326			—			70,808
Amortization of intangible assets	2,693			—			—			—			2,693
Total cost of revenues	320,910			—			9,479			(68,671		)	261,718
Gross profit	357,026			244,819			(9,479		)	(87,199		)	505,167
Operating expenses:
Research and development	118,108			—			252			(7,231		)	111,129
Marketing and selling	183,865			—			(9,897		)	(10,764		)	163,204
General and administrative	58,448			—			(2,419		)	(5,297		)	50,732
Amortization of intangible assets	8,528			—			—			—			8,528
Restructuring costs, net	8,858			—			(2,324		)	—			6,534
Total operating expenses	377,807			—			(14,388		)	(23,292		)	340,127
Operating (loss) income	(20,781		)	244,819			4,909			(63,907		)	165,040
Interest income	144			—			(2		)	—			142
Interest expense	(2,053		)	—			125			—			(1,928		)
Other expense, net	(159		)	—			—			—			(159		)
(Loss) income from continuing operations before income taxes	(22,849		)	244,819			5,032			(63,907		)	163,095
Provision for income taxes, net	942			—			(307		)	—			635
(Loss) income from continuing operations, net of tax	(23,791		)	244,819			5,339			(63,907		)	162,460
Discontinued operations:
Income from divested operations	—			—			—			63,907			63,907
Income from discontinued operations	—			—			—			63,907			63,907
Net (loss) income	$	(23,791	)	$	244,819		$	5,339		$	—		$	226,367
(Loss) income per common share – basic:
(Loss) income per share from continuing operations, net of tax – basic	$	(0.62	)										$	4.23
Income per share from discontinued operations – basic	—												1.66
Net (loss) income per common share – basic	$	(0.62	)										$	5.89
(Loss) income per common share – diluted:
(Loss) income per share from continuing operations, net of tax – diluted	$	(0.62	)										$	4.22
Income per share from discontinued operations – diluted	—												1.67
Net (loss) income per common share – diluted	$	(0.62	)										$	5.87

Weighted-average common shares outstanding – basic	38,435												38,435
Weighted-average common shares outstanding – diluted	38,435												38,534

Adjustments to Consolidated Statement of Cash Flows

The following table presents the impact of the financial statement adjustments on the Company’s previously reported consolidated statement of cash flows for the year ended December 31, 2011 (in thousands):



	Year Ended December 31, 2011
	As Previously Reported			Revenue Restatement Adjustments			Other Restatement Adjustments			Discontinued Operations		As Restated
Cash flows from operating activities:
Net (loss) income	$	(23,791	)	244,819			$	5,339		—		$	226,367
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	31,983			—			—			—		31,983
Provision for doubtful accounts	1,561			—			(88		)	—		1,473
Non-cash provision for restructuring	326			—			—			—		326
Loss on sales of assets	597			—			—			—		597
Gain on disposal of fixed assets	(24		)	—			24			—		—
Stock-based compensation expense	14,619			—			(2,010		)	—		12,609
Non-cash interest expense	301			—			—			—		301
Foreign currency transaction (gains) losses	(135		)	—			1,953			—		1,818
Provision for deferred taxes	(1,658		)	—			(336		)	—		(1,994		)
Changes in operating assets and liabilities
Accounts receivable	(4,904		)	1,353			(253		)	—		(3,804		)
Inventories	(3,475		)	—			158			—		(3,317		)
Prepaid expenses and other current assets	(298		)	—			75			—		(223		)
Accounts payable	(4,769		)	—			236			—		(4,533		)
Accrued expenses, compensation and benefits and other liabilities	(14,323		)	—			(3,113		)	—		(17,436		)
Income taxes payable	(757		)	—			117			—		(640		)
Deferred revenues	5,611			(246,172		)	1			—		(240,560		)
Net cash provided by operating activities	864			—			2,103			—		2,967

Cash flows from investing activities:
Purchases of property and equipment	(10,771		)	—			(24		)	—		(10,795		)
Capitalized software development costs	—			—			(1,242		)	—		(1,242		)
Change in other long-term assets	(1,099		)	—			944			—		(155		)
Net cash used in investing activities	(11,870		)	—			(322		)	—		(12,192		)

Cash flows from financing activities:
Proceeds from the issuance of common stock under employee stock	2,026			—			1,213			—		3,239
Common stock repurchases for tax withholdings for net settlement of equity awards	—			—			(1,213		)	—		(1,213		)
Proceeds from revolving credit facilities	21,000			—			—			—		21,000
Payments on revolving credit facilities	(21,000		)	—			—			—		(21,000		)
Net cash provided by financing activities	2,026			—			—			—		2,026

Effect of exchange rate changes on cash and cash equivalents	(947		)	—			(1,781		)	—		(2,728		)
Net decrease in cash and cash equivalents	(9,927		)	—			—			—		(9,927		)
Cash and cash equivalents at beginning of period	42,782			—			—			—		42,782
Cash and cash equivalents at end of period	$	32,855		$	—		$	—		$	—	$	32,855