SAN JOSE, Calif., Dec. 14 /PRNewswire-FirstCall/ -- Interwoven, Inc. , a global leader in content management solutions, today announced that the Audit Committee of the Board of Directors has completed its voluntary review of historical stock option grant procedures and related accounting, and that the Company has filed with the Securities and Exchange Commission its Annual Report on Form 10-K for the year ended December 31, 2006 and its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2007, June 30, 2007 and September 30, 2007. Interwoven also released historical financial information for periods covered by these filings. In addition, the Company announced that it will hold its 2007 annual meeting of stockholders on February 21, 2008. The Company's filings and the annual stockholders meeting had been delayed pending the conclusion of the review and the subsequent decision to restate the Company's previously-issued financial statements for certain periods.
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Summary of Completed Voluntary Review of Historical Stock Option Grant Procedures
The Audit Committee of the Board of Directors has completed its voluntary review of historical stock option procedures and related accounting and reported its findings and recommendations to the Board of Directors. The scope of the Audit Committee's review was extensive, and included review of all stock option grants made during the period commencing with the date of the Company's initial public offering in October 1999 through June 2006 (the "Review Period"). The Audit Committee and its advisors considered all available evidence, including reviewing over 400,000 pages of electronic and hard copy documents and conducting over 26 interviews of current and former employees, directors and advisors.
The Audit Committee did not identify any evidence of intentional misconduct by the Company's current or former directors, senior management or other employees and has concluded that no personnel actions were warranted as a result of its review. The Audit Committee has determined that for certain stock option awards the appropriate measurement dates for financial accounting purposes differ from the previously recorded grant dates of those awards.
Beginning in November 2001, the Company has implemented improved procedures, processes and systems to provide additional safeguards and greater internal control over stock option granting and administration. In connection with its review, the Audit Committee recommended, and the Company adopted, additional enhancements to those procedures, which are designed to ensure that the Company continues to employ best practices and procedures with respect to equity compensation awards.
Summary of Restatement
Based on the Audit Committee review, the Company determined that it should have recognized approximately $31.5 million in non-cash stock-based compensation expense during the Review Period that was not accounted for in the Company's previously-issued financial statements. Therefore, the Company has restated its previously-issued consolidated financial statements for years 2002 through 2005 and its condensed consolidated balance sheets for each of the quarters in 2005 and the first three quarters of 2006 to correct errors related to accounting for stock-based compensation expense. The restatement had no impact on the Company's consolidated statement of operations for the year ended December 31, 2006. The restatement also had no impact on the Company's previously reported cash positions for any period.
Further information regarding the stock options review, the restatement and related matters is included in the Company's Annual Report on Form 10-K for the year ended December 31, 2006. Previously filed Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q affected by the restatement have not been amended and should not be relied upon.
Summary of Historical Financial Results
For the quarter ending December 31, 2006, Interwoven recorded net income of $4.3 million, or $0.10 per share, in accordance with generally accepted accounting principles. On a non-GAAP basis, Interwoven recorded net income of $6.3 million, or $0.14 per share, for the fourth quarter of 2006. As previously reported, Interwoven reported total revenues of $53.9 million for the fourth quarter of 2006, an increase of 13% from total revenues of $47.6 million for the fourth quarter of 2005.
For the quarter ending March 31, 2007, Interwoven recorded net income of $4.7 million, or $0.11 per share, in accordance with generally accepted accounting principles. On a non-GAAP basis, Interwoven recorded net income of $6.0 million, or $0.13 per share, for the first quarter of 2007. As previously reported, Interwoven reported total revenues of $52.7 million for the first quarter of 2007, an increase of 13% from total revenues of $46.5 million for the first quarter of 2006.
For the quarter ending June 30, 2007, Interwoven recorded net income of $4.2 million, or $0.09 per share, in accordance with generally accepted accounting principles. On a non-GAAP basis, Interwoven recorded net income of $6.7 million, or $0.14 per share, for the second quarter of 2007. As previously reported, Interwoven reported total revenues of $54.6 million for the second quarter of 2007, an increase of 11% from total revenues of $49.0 million for the second quarter of 2006.
For the quarter ending September 30, 2007, Interwoven recorded net income of $4.1 million, or $0.09 per share, in accordance with generally accepted accounting principles. On a non-GAAP basis, Interwoven recorded net income of $7.3 million, or $0.16 per share, for the third quarter of 2007. As previously reported, Interwoven reported total revenues of $55.5 million for the third quarter of 2007, an increase of 9% from total revenues of $50.9 million for the third quarter of 2006.
For more information, please refer to the tables attached to this release.
Reconciliations of net income and net income per share calculated in accordance with generally accepted accounting principles and non-GAAP net income and non-GAAP net income per share are provided in the tables immediately following the consolidated statements of operations. Additional information about the company's non-GAAP financial measures can be found under the caption "Non-GAAP Financial Information" below and Interwoven's website at http://www.interwoven.com/.
Status of NASDAQ Listing; 2007 Annual Meeting of Stockholders
As previously announced, as a result of its failure to timely file its Annual Report on Form 10-K for the year ended December 31, 2006 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2007, June 30, 2007 and September 30, 2007, Interwoven's common stock was subject to delisting from The NASDAQ Global Market as a result of noncompliance with NASDAQ Marketplace Rule 4310(c)(14). On November 30, 2007, the Board of Directors of The NASDAQ Stock Market LLC (the "Nasdaq Board") called for review and stayed a decision of the NASDAQ Listing and Hearing Review Council to suspend Interwoven's common stock from trading on The NASDAQ Global Market on December 5, 2007 if the Company did not file all its delinquent Securities and Exchange Commission reports and restatements by December 3, 2007. Interwoven believes it is now current in its Securities and Exchange Commission reporting obligations and is awaiting confirmation of its compliance with the continued listing requirements under NASDAQ Marketplace Rules.
The NASDAQ rules also require the Company to solicit proxies and hold an annual meeting of stockholders each year. Due to the delay in filing its Securities and Exchange Commission reports, the Company will be unable to hold its 2007 Annual Meeting of Stockholders prior to December 31, 2007. Interwoven informed the NASDAQ Board of this item prior to the date the NASDAQ Board decided to call for review of the Council's decision.
Because the Company is unable to hold its annual meeting by December 31, 2007, it expects NASDAQ to issue a new notice of non-compliance to the Company in early January 2008. The Company will be afforded the opportunity to address this matter with a NASDAQ Listing Qualifications Panel at a hearing, which is expected to be held in late February 2008.
Interwoven plans to hold its 2007 Annual Meeting of Stockholders on February 21, 2008. January 14, 2008, at the close of business, has been set as the record date for the determination of stockholders entitled to vote on the matters to be presented at the February 21, 2008 meeting. Interwoven expects to be in full compliance with all applicable NASDAQ listing requirements subsequent to the annual meeting.
Non-GAAP Financial Information
To supplement the company's consolidated financial statements presented in accordance with generally accepted accounting principles, Interwoven uses measures of net income, net income per share, which are adjusted to exclude restructuring and excess facilities charges, stock-based compensation expense, amortization of intangible assets, and the related tax impact of these adjustments, and costs associated with the Company's voluntary review of historical stock option grant procedures and related accounting. These non- GAAP results are not in accordance with, or an alternative for, results prepared in accordance with accounting principles generally accepted in the United States of America, and the company's non-GAAP measures may be different from non-GAAP measures used by other companies. Interwoven believes that the presentation of non-GAAP results provides useful information to management and investors regarding underlying trends in its consolidated financial condition and results of operations. Interwoven also believes that where the adjustments used in calculating non-GAAP net income and non-GAAP net income per share are based on specific, identified charges or costs that impact different line items in the consolidated statements of operations (including cost of revenues-license, cost of revenues-support and service, sales and marketing, research and development, and general and administrative expenses), that it is useful to investors to know how these specific line items in the consolidated statements of operations are affected by these adjustments. For its internal budgets, Interwoven's management uses consolidated financial statements that do not include restructuring and excess facilities charges, stock-based compensation expense, amortization of intangible assets and the related tax impact of these adjustments, and costs associated with the Company's voluntary review of historical stock option grant procedures and related accounting. Interwoven uses these non-GAAP measures in assessing corporate performance and determining incentive compensation. Readers are advised to review and consider carefully the financial information prepared in accordance with accounting principles generally accepted in the United States of America contained in this press release and Interwoven's periodic filings with the Securities and Exchange Commission.
Cautionary Statement Regarding Forward-Looking Statements
This press release contains "forward-looking" statements about the Company's beliefs regarding its compliance with NASDAQ continued listing requirements and the consequences of its failure to hold its 2007 Annual Meeting of Stockholders until 2008. These forward looking statements are subject to risks and uncertainties, and actual results could differ materially from those projected. These risks and uncertainties include, but are not limited to, the timing and outcome of the Nasdaq Board's review of the Listing and Hearing Review Council's decision and the NASDAQ hearings process related to Interwoven's failure to timely hold its 2007 Annual Meeting of Stockholders under NASDAQ Marketplace Rules. These statements are based on estimates and information available to us at the time of this press release and are not guarantees of future performance. These and other risks and uncertainties associated with our business are described in our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Forms 8-K, which are on file with the Securities and Exchange Commission and available through http://www.sec.gov/.
About Interwoven
Interwoven is a global leader in content management solutions. Interwoven's software and services enable organizations to effectively leverage content to drive business growth by improving the customer experience, increasing collaboration, and streamlining business processes in dynamic environments. Our unique approach combines user-friendly simplicity with robust IT performance and scalability to unlock the value of content. Today, more than 4,000 enterprise and professional services organizations worldwide have chosen Interwoven, including: adidas, Airbus, Avaya, Cisco, DLA Piper, the Federal Reserve Bank, FedEx, HSBC, LexisNexis, Microsoft, Samsung, Shell, Samsonite, White & Case, and Yamaha. Over 20,000 developers and over 300 partners enrich and extend Interwoven's offerings. To learn more about Interwoven, please visit http://www.interwoven.com/.
INTERWOVEN, INC. Consolidated Statements of Operations (In thousands, except per share data) (Unaudited) Three Months Ended Dec. 31, March 31, June 30, Sept. 30, 2006 2007 2007 2007 Revenues: License $21,021 $19,614 $21,017 $21,225 Support and service 32,896 33,102 33,597 34,228 Total revenues 53,917 52,716 54,614 55,453 Cost of revenues: License 3,352 1,960 2,086 1,859 Support and service 12,932 13,192 13,441 13,915 Total cost of revenues 16,284 15,152 15,527 15,774 Gross profit 37,633 37,564 39,087 39,679 Operating expenses: Sales and marketing 20,668 19,804 20,204 19,000 Research and development 9,085 9,061 9,315 9,552 General and administrative 3,772 4,959 5,971 6,812 Amortization of intangible assets 828 828 828 814 Restructuring and excess facilities charges (recoveries) (15) 3 61 1 Total operating expenses 34,338 34,655 36,379 36,179 Income from operations 3,295 2,909 2,708 3,500 Interest income and other, net 1,888 2,492 2,282 2,199 Income before provision for income taxes 5,183 5,401 4,990 5,699 Provision for income taxes 853 673 785 1,638 Net income $4,330 $4,728 $4,205 $4,061 Basic net income per common share $0.10 $0.11 $0.09 $0.09 Shares used in computing basic net income per common share 43,813 44,636 45,057 45,293 Diluted net income per common share $0.10 $0.10 $0.09 $0.09 Shares used in computing diluted net income per common share 45,337 46,460 46,575 46,538 INTERWOVEN, INC. Consolidated Balance Sheets (In thousands) Dec. 31, March 31, June 30, Sept. 30, 2006 2007 2007 2007 Assets Current assets: Cash and cash equivalents $74,119 $73,622 $93,324 $108,959 Short-term investments 102,342 114,722 100,784 88,928 Accounts receivable, net 34,492 32,757 30,800 33,278 Prepaid expenses and other current assets 5,371 5,372 5,174 5,609 Total current assets 216,324 226,473 230,082 236,774 Property and equipment, net 4,815 6,615 11,464 16,789 Goodwill 190,935 190,735 190,482 189,315 Other intangible assets, net 10,655 8,601 6,547 4,756 Other assets 3,558 3,321 3,156 3,223 Total $426,287 $435,745 $441,731 $450,857 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $1,897 $2,336 $3,541 $5,344 Accrued liabilities 31,684 28,573 28,834 30,673 Restructuring and excess facilities accrual 5,132 3,826 2,479 1,685 Deferred revenues 57,317 61,776 59,348 56,947 Total current liabilities 96,030 96,511 94,202 94,649 Accrued liabilities 2,733 2,880 3,408 6,726 Restructuring and excess facilities accrual 3,564 3,112 2,694 2,288 Total liabilities 102,327 102,503 100,304 103,663 Stockholder's equity: Preferred stock - - - - Common stock 44 45 45 45 Additional paid-in capital 754,904 759,420 763,385 764,663 Cumulative translation adjustment 50 51 149 397 Accumulated other comprehensive income (loss) (86) (50) (133) 47 Accumulated deficit (430,952) (426,224) (422,019) (417,958) Total stockholders' equity 323,960 333,242 341,427 347,194 Total liabilities and stockholders' equity $426,287 $435,745 $441,731 $450,827 INTERWOVEN, INC. Impact of Non-GAAP Adjustments on Reported Net Income Quarter Ended December 31, 2006 (In thousands, except per share data) (Unaudited) Quarter Ended December 31, 2006 As Non- Reported Adjustments GAAP (In thousands, except per share amounts) Revenues: License $21,021 $ - $21,021 Support and service 32,896 - 32,896 Total revenues 53,917 - 53,917 Cost of revenues: License (1) 3,352 (2,421) 931 Support and service (2) 12,932 (178) 12,754 Total cost of revenues 16,284 (2,599) 13,685 Gross profit 37,633 2,599 40,232 Operating expenses: Sales and marketing (2) 20,668 (360) 20,308 Research and development (2) 9,085 (378) 8,707 General and administrative (2) 3,772 (145) 3,627 Amortization of intangible assets (1) 828 (828) - Restructuring and excess facilities charges (3) (15) 15 - Total operating expenses 34,338 (1,696) 32,642 Income from operations 3,295 4,295 7,590 Interest income and other, net 1,888 - 1,888 Income before provision for income taxes 5,183 4,295 9,478 Provision for income taxes (4) 853 2,370 3,223 Net income $4,330 $1,925 $6,255 Diluted net income per common share $0.10 $0.14 Shares used in computing diluted net income per common share 45,337 45,337 (1) Adjustments reflect the reversal of $2.4 million associated with the amortization of purchased technology and $828,000 associated with the amortization of intangible assets. (2) Adjustments reflect the reversal of stock-based compensation expense of $178,000 in cost of revenues - support and service, $360,000 in sales and marketing, $378,000 in research and development and $145,000 in general and administrative. (3) Adjustment reflects the reversal of $15,000 in adjustments associated with the Company's restructuring and excess facilities accrual. (4) Adjustment reflects an additional tax provision associated with the non-GAAP adjustments. INTERWOVEN, INC. Impact of Non-GAAP Adjustments on Reported Net Income Quarter Ended March 31, 2007 (In thousands, except per share data) (Unaudited) Quarter Ended March 31, 2007 As Non- Reported Adjustments GAAP (In thousands, except per share amounts) Revenues: License $19,614 $ - $19,614 Support and service 33,102 - 33,102 Total revenues 52,716 - 52,716 Cost of revenues: License (1) 1,960 (1,226) 734 Support and service (2) 13,192 (148) 13,044 Total cost of revenues 15,152 (1,374) 13,778 Gross profit 37,564 1,374 38,938 Operating expenses: Sales and marketing (2) 19,804 (415) 19,389 Research and development (2) 9,061 (235) 8,826 General and administrative (2)(3) 4,959 (1,363) 3,596 Amortization of intangible assets (1) 828 (828) - Restructuring and excess facilities charges (4) 3 (3) - Total operating expenses 34,655 (2,844) 31,811 Income from operations 2,909 4,218 7,127 Interest income and other, net (5) 2,492 (472) 2,020 Income before provision for income taxes 5,401 3,746 9,147 Provision for income taxes (6) 673 2,437 3,110 Net income $4,728 $1,309 $6,037 Diluted net income per common share $0.11 $0.13 Shares used in computing diluted net income per common share 46,460 46,460 (1) Adjustments reflect the reversal of $1.2 million associated with the amortization of purchased technology and $828,000 associated with the amortization of intangible assets. (2) Adjustments reflect the reversal of stock-based compensation expense of $148,000 in cost of revenues - support and service, $415,000 in sales and marketing, $235,000 in research and development and $123,000 in general and administrative. (3) Adjustment reflects the reversal of $1.2 million in expenses incurred in connection with the Company's voluntary review of historical stock option grant procedures and related accounting. (4) Adjustment reflects the reversal of $3,000 in adjustments associated with the Company's restructuring and excess facilities accrual. (5) Adjustment reflects the reversal of recoveries from amounts held in escrow related to the settlement of certain claims associated with the acquisition of Scrittura, Inc. (6) Adjustment reflects an additional tax provision associated with the non-GAAP adjustments. INTERWOVEN, INC. Impact of Non-GAAP Adjustments on Reported Net Income Quarter Ended June 30, 2007 (In thousands, except per share data) (Unaudited) Quarter Ended June 30, 2007 As Non- Reported Adjustments GAAP (In thousands, except per share amounts) Revenues: License $21,017 $ - $21,017 Support and service 33,597 - 33,597 Total revenues 54,614 - 54,614 Cost of revenues: License (1) 2,086 (1,226) 860 Support and service (2) 13,441 (143) 13,298 Total cost of revenues 15,527 (1,369) 14,158 Gross profit 39,087 1,369 40,456 Operating expenses: Sales and marketing (2) 20,204 (460) 19,744 Research and development (2) 9,315 (203) 9,112 General and administrative (2)(3) 5,971 (2,309) 3,662 Amortization of intangible assets (1) 828 (828) - Restructuring and excess facilities charges (4) 61 (61) - Total operating expenses 36,379 (3,861) 32,518 Income from operations 2,708 5,230 7,938 Interest income and other, net 2,282 - 2,282 Income before provision for income taxes 4,990 5,230 10,220 Provision for income taxes (5) 785 2,690 3,475 Net income $4,205 $2,540 $6,745 Diluted net income per common share $0.09 $0.14 Shares used in computing diluted net income per common share 46,575 46,575 (1) Adjustments reflect the reversal of $1.2 million associated with the amortization of purchased technology and $828,000 associated with the amortization of intangible assets. (2) Adjustments reflect the reversal of stock-based compensation expense of $143,000 in cost of revenues - support and service, $460,000 in sales and marketing, $203,000 in research and development and $403,000 in general and administrative. (3) Adjustment reflects the reversal of $1.9 million in expenses incurred in connection with the Company's voluntary review of historical stock option grant procedures and related accounting. (4) Adjustment reflects the reversal of $61,000 in adjustments associated with the Company's restructuring and excess facilities accrual. (5) Adjustment reflects an additional tax provision associated with the non-GAAP adjustments. INTERWOVEN, INC. Impact of Non-GAAP Adjustments on Reported Net Income Quarter Ended September 30, 2007 (In thousands, except per share data) (Unaudited) Quarter Ended September 30, 2007 As Non- Reported Adjustments GAAP (In thousands, except per share amounts) Revenues: License $21,225 $ - $21,225 Support and service 34,228 - 34,228 Total revenues 55,453 - 55,453 Cost of revenues: License (1) 1,859 (977) 882 Support and service (2) 13,915 (169) 13,746 Total cost of revenues 15,774 (1,146) 14,628 Gross profit 39,679 1,146 40,825 Operating expenses: Sales and marketing (2) 19,000 (450) 18,550 Research and development (2) 9,552 (213) 9,339 General and administrative (2)(3) 6,812 (2,783) 4,029 Amortization of intangible assets (1) 814 (814) - Restructuring and excess facilities charges (4) 1 (1) - Total operating expenses 36,179 (4,261) 31,918 Income from operations 3,500 5,407 8,907 Interest income and other, net 2,199 - 2,199 Income before provision for income taxes 5,699 5,407 11,106 Provision for income taxes (5) 1,638 2,138 3,776 Net income $4,061 $3,269 $7,330 Diluted net income per common share $0.09 $0.16 Shares used in computing diluted net income per common share 46,538 46,538 (1) Adjustments reflect the reversal of $1.0 million associated with the amortization of purchased technology and $814,000 associated with the amortization of intangible assets. (2) Adjustments reflect the reversal of stock-based compensation expense of $169,000 in cost of revenues - support and service, $450,000 in sales and marketing, $213,000 in research and development and $469,000 in general and administrative. (3) Adjustment reflects the reversal of $2.3 million in expenses incurred in connection with the Company's voluntary review of historical stock option grant procedures and related accounting. (4) Adjustment reflects the reversal of $1,000 in adjustments associated with the Company's restructuring and excess facilities accrual. (5) Adjustment reflects an additional tax provision associated with the non-GAAP adjustments.
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