Internap (AMEX:IIP)
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Internap Network Services Corporation (AMEX: IIP)
-- Record Revenues of $42.6 Million for Q1 2006
-- Record Net Income (GAAP) of $0.5 Million for Q1 2006
(including stock-based compensation expense of $1.5 million)
compared with a Net Loss (GAAP) of $(0.6 million) for Q1 2005
(not including stock-based compensation expense)
-- Q1 2006 Cash Flow from Operations of $5.5 million compared
with negative Cash Flow from Operations of $(1.7 million) for
Q1 2005
-- Record Adjusted EBITDA of $5.8 million for Q1 2006
Internap Network Services Corporation (AMEX: IIP), a leading
provider of performance-based routing services for IP networks, today
reported financial results for the first quarter ended March 31, 2006.
For the first quarter of 2006, revenues totaled $42.6 million, an
increase of 12.6% compared to the first quarter of 2005. Net income
for the first quarter of 2006, on a generally accepted accounting
principles (GAAP) basis, was $0.5 million, or $0.00 per diluted share,
which includes a charge for non-cash stock-based compensation expense
of $1.5 million, or $0.00 per diluted share, pursuant to the adoption
of SFAS No. 123R in the first quarter, compared to a net loss on a
GAAP basis for the first quarter of 2005 of $(0.6 million), or $(0.00)
per basic and diluted share, which does not include the effect of
stock-based compensation expense. Net income prior to 2006 did not
include comparable stock-based compensation. Had the Company accounted
for stock-based compensation under SFAS 123 in prior periods it would
have reported a normalized net loss(1) and normalized net loss per
share for the first quarter of 2005 of $(3.2 million) and $(0.01),
respectively.
Pro-forma net income(1) for the first quarter of 2006 was $2.0
million, or $0.01 per diluted share, which excludes stock-based
compensation expense of $1.5 million, or $0.00 per diluted share.
For comparative purposes to the fourth quarter of 2005, pro forma
net income(1) for the first quarter of 2006 was $2.0 million and $0.01
pro forma net income per diluted share(1) versus a net loss on a GAAP
basis of $(0.2 million) and $(0.00) per basic and diluted share for
the fourth quarter of 2005.
Gross margin (defined as revenues of $42.6 million less $22.2
million of direct cost of network, excluding depreciation and
amortization, divided by revenues) for the first quarter of 2006 was
48%.
The Company reported Adjusted EBITDA(1) of $5.8 million for the
first quarter, an improvement of $2.0 million from the fourth quarter
of 2005 and an improvement of $2.8 million over Q1 2005. The Company
also reported cash, cash equivalents and investments in marketable
securities at March 31, 2006 of $44.4 million, an increase of $3.9
million from the end of the fourth quarter 2005.
"Internap started 2006 with strong results by delivering quarterly
year-over-year, double-digit revenue growth, as well as $0.5 million
of net income and $2.0 million of pro forma net income in the first
quarter," said James DeBlasio, chief executive officer, Internap. "Our
focus on managing costs and driving an increasing percentage of every
incremental dollar of new revenue to the bottom line is evidenced by
our reported positive net income and increasing cash position in the
first quarter."
Internap ended the quarter with 2,142 customers under contract,
adding 50 new customers in the first quarter on a net basis.
2006 Full Year Guidance
-- Full year revenue growth over 2005 revenues is expected to be
between 10-12%, up from earlier guidance of 5-7%
-- Gross margins are expected to be in the mid-to-high 40%'s
range
-- Capital expenditures are expected in the range $12 million to
$14 million, up from earlier guidance of $10 million to $12
million.
-- Adjusted EBITDA(1) is expected to range between $18 million to
$22 million, up from earlier guidance of $16 - $19 million.
Conference Call Information:
Internap's first quarter teleconference will be held today
beginning at 5:00 p.m. EDT. The dial-in numbers are 866.202.0886; pass
code 86358891 for domestic callers, and 617.213.8841; pass code
86358891 for international participants. The simultaneous web cast
will be available from the Investor Relations section of the web site
at: www.internap.com.
Internap will provide a replay of the teleconference on its
website. A replay will be available from May 4th through May 11th at
888.286.8010; replay code 91895636 and international dial-in at
617.801.6888; replay code 91895636.
A reconciliation between GAAP information and non-GAAP information
contained in this press release is provided in the tables below
entitled, "Reconciliation of Net Income (Loss) to EBITDA and Net Cash
Provided By (Used In) Operating Activities," "Reconciliation of Net
Income (Loss) to Adjusted EBITDA and Net Cash Provided by (Used In)
Operating Activities," "Reconciliation of Net Income (Loss) and
Diluted Net Income (Loss) Per Share to Normalized Net Income (Loss)
and Diluted Net Income (Loss) Per Share, Including the Effect of
Stock-Based Compensation," and "Reconciliation of Net Income (Loss)
and Diluted Net Income (Loss) Per Share to Pro Forma Net Income (Loss)
and Diluted Net Income (Loss) Per Share, Excluding the Effect of
Stock-Based Compensation Expense." This information is also available
on our Web Site under the Investor Relations heading.
(1)See "Use of Non-GAAP Financial Measures" below for definitions.
A reconciliation of the non-GAAP financial measures to the most
comparable GAAP financial measures is attached to this release and
commences at the bottom of our condensed consolidated financial
statements.
About Internap
Internap is a market leader of intelligent route-control solutions
that bring reliability, performance and security to the Internet. The
company's patented and patent-pending technologies address the
inherent weaknesses of the Internet, enabling enterprises to take full
advantage of the benefits of deploying business-critical applications
such as e-commerce, Voice-over-IP (VoIP), video-conferencing, and
streaming audio/video across the Internet. Through a portfolio of
high-performance IP solutions, customers can bypass congestion points,
overcome routing inefficiencies and optimize performance of their
applications. Internap solutions are backed by an industry-leading
performance guarantee that covers the Internet as opposed to just one
network. These offerings include: network- and premise-based route
optimization solutions, colocation, VPN, content distribution and
managed security services.
Internap currently serves more than 2,000 customers, including
Fortune 1000 and mid-tier enterprises in the financial services,
government, travel/hospitality, manufacturing, media/entertainment,
technology and retail industries. The company provides services
throughout North America, Europe, Asia and Australia. For more
information, please visit the company website at www.internap.com.
Internap "Safe Harbor" Statement
Certain information included in this press release constitutes
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements, other than
statements of historical facts, including, among others, statements
regarding our future financial position, business strategy, projected
levels of growth, projected costs and projected financing needs, are
forward-looking statements. Those statements include statements
regarding the intent, belief or current expectations of Internap and
members of our management team, as well as the assumptions on which
such statements are based, and equally are identified by the use of
words such as "may," "will," "seeks," "anticipates," "believes,"
"estimates," "expects," "projects," "forecasts," "plans," "intends,"
"should" or similar expressions. Forward-looking statements are not
guarantees of future performance and involve risks and uncertainties
that actual results may differ materially from those contemplated by
forward-looking statements. Our reported GAAP-based results are
negatively affected by the implementation of new accounting rules
related to the expensing of stock options, commencing in 2006. Other
important factors that may affect Internap's business, results of
operations and financial condition include, but are not limited to,
our ability to sustain profitability; our ability to compete against
existing and future competitors; pricing pressures; our ability to
respond successfully to the evolution of the high performance Internet
connectivity and services industry; our ability to respond
successfully to technological change; our ability to deploy new access
points in a cost-efficient manner; the availability of services from
Internet network service providers or network service providers
providing network access loops and local loops on favorable terms or
at all; failure of third party suppliers to deliver their products and
services on favorable terms or at all; failures in our network
operations centers, network access points or computer systems;
fluctuations in our operating results; our ability to secure adequate
funding; the incurrence of additional restructuring charges; our
ability to operate in light of restrictions in our credit facility,
including our ability to maintain ratios set forth in the credit
facility; our ability to attract and retain qualified personnel; our
ability to protect ourselves and our customers from security breaches;
our ability to protect our intellectual property; our ability to
successfully complete future acquisitions; risks associated with
international operations; claims relating to intellectual property
rights; government regulation of the Internet; the dilutive effects of
our stock price due to outstanding stock options and warrants; future
sales of stock; effects of natural disasters or terrorist activity;
and volatility of our stock price.
Our Annual Report on Form 10-K, subsequent Quarterly Reports on
Form 10-Q, recent Current Reports on Form 8-K and other Securities and
Exchange Commission filings discuss the foregoing risks as well as
other important risk factors that could contribute to such differences
or otherwise affect our business, results of operations and financial
condition. The forward-looking statements in this release and the
related conference call for analysts and investors speak only as of
the date they are made. We undertake no obligation to revise or update
publicly any forward-looking statement for any reason.
Internap is a trademark of Internap. All other trademarks and
brands are the property of their respective owners.
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INTERNAP NETWORK SERVICES CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
For the three months ended
March 31,
--------------------------
2006 2005
--------------------------
Revenue $ 42,625 $ 37,855
--------------------------
Costs and expense:
Direct cost of revenue, exclusive of
depreciation and amortization, shown below 22,217 19,887
Customer support(a) 2,897 2,662
Product development(a) 1,225 1,445
Sales and marketing(a) 6,970 6,326
General and administrative(a) 5,190 4,490
Depreciation and amortization 3,932 3,496
Loss on disposals of property and
equipment 2 6
--------------------------
Total operating costs and expense 42,433 38,312
--------------------------
Income (loss) from operations 192 (457)
--------------------------
Non-operating (income) expense:
Interest expense 251 374
Interest income (424) (275)
Other, net (176) 14
--------------------------
Total non-operating (income) expense (349) 113
--------------------------
--------------------------
Net income (loss) $ 541 $ (570)
==========================
Basic net income (loss) per share $ 0.00 $ (0.00)
==========================
Diluted net income (loss) per share $ 0.00 $ (0.00)
==========================
Weighted average shares used in computing
basic net income (loss) per share 342,928 338,199
==========================
Weighted average shares used in computing
diluted net income (loss) per share 344,567 338,199
==========================
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(a)Includes the following amounts related to
equity awards:
Customer support $ 378 $ --
Product development 159 --
Sales and marketing 585 --
General and administrative 385 --
----------------------
Total $ 1,507 $ --
======================
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INTERNAP NETWORK SERVICES CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
March 31, December 31,
2006 2005
--------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 30,007 $ 24,434
Short-term investments in marketable
securities 14,402 16,060
Accounts receivable, net of allowance of
$711 and $963, respectively 17,148 19,128
Inventory 610 779
Prepaid expenses and other assets 4,048 2,957
--------------------------
Total current assets 66,215 63,358
Property and equipment, net of accumulated
depreciation of $145,910 and $143,687,
respectively 47,674 50,072
Investments 2,068 1,999
Intangible assets, net of accumulated
amortization of $18,245 and $18,100,
respectively 2,185 2,329
Goodwill 36,314 36,314
Deposits and other assets 1,134 1,297
--------------------------
$ 155,590 $ 155,369
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, current portion $ 4,375 $ 4,375
Accounts payable 4,396 5,766
Accrued liabilities 6,370 7,267
Deferred revenue, current portion 2,544 2,737
Capital lease obligations, current
portion 571 559
Restructuring liability, current portion 1,246 1,202
--------------------------
Total current liabilities 19,502 21,906
Notes payable, less current portion 6,563 7,656
Deferred revenue, less current portion 607 533
Capital lease obligations, less current
portion 100 247
Restructuring liability, less current
portion 4,687 5,075
Deferred rent 10,301 9,185
Other long-term liabilities 1,058 1,039
--------------------------
Total liabilities 42,818 45,641
--------------------------
Commitments and contingencies
Stockholders' equity:
Series A convertible preferred stock,
$0.001 par value, 3,500 shares
designated, no shares issued or
outstanding -- --
Common stock, $0.001 par value, 600,000
shares authorized, 343,999 and 341,677
shares issued and outstanding,
respectively 344 342
Additional paid-in capital 971,908 969,493
Accumulated deficit (859,571) (860,112)
Accumulated items of other comprehensive
income 91 5
------------- -----------
Total stockholders' equity 112,772 109,728
--------------------------
$ 155,590 $ 155,369
==========================
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INTERNAP NETWORK SERVICES CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three months ended
March 31,
------------------------
2006 2005
------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 541 $ (570)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,932 3,496
Loss on disposal of assets 2 --
Provision for doubtful accounts (23) 363
(Income) loss from equity method investment (47) 16
Non-cash changes in deferred rent 1,116 470
Stock-based compensation expense 1,507 --
Other, net -- (48)
Changes in operating assets and liabilities:
Accounts receivable 2,002 (22)
Inventory 169 75
Prepaid expenses, deposits and other assets (928) (81)
Accounts payable (1,369) (4,389)
Accrued liabilities (897) (427)
Deferred revenue (120) 36
Accrued restructuring charge (344) (620)
------------------------
Net cash provided by (used in) operating
activities 5,541 (1,701)
------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (1,391) (2,958)
Purchases of investments in marketable
securities (2,996) --
Maturities of marketable securities 4,704 1,815
Proceeds from disposal of property and
equipment 15 --
Other, net -- (52)
------------------------
Net cash used in (provided by) investing
activities 332 (1,195)
------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes payable (1,094) (1,729)
Payments on capital lease obligations (135) (124)
Proceeds from exercise of stock options,
employee stock purchase plan, and
exercise of warrants 910 99
Other, net 19 --
------------------------
Net cash used in financing activities (300) (1,754)
------------------------
Net increase (decrease) in cash and cash
equivalents 5,573 (4,650)
Cash and cash equivalents at beginning of
period 24,434 33,823
------------------------
Cash and cash equivalents at end of period $ 30,007 $ 29,173
========================
NON-CASH INVESTING AND FINANCING TRANSACTIONS
Supplemental disclosure of cash flow
information:
Cash paid for interest, net of amounts
capitalized $ 229 $ 358
Non-cash acquisition of fixed assets -- 971
Changes in accounts payable attributable to
purchases of property and equipment -- (1,306)
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Use of Non-GAAP Financial Measures
In addition to providing financial measurements based on generally
accepted accounting principles in the United States of America (GAAP),
Internap has historically provided additional financial metrics that
are not prepared in accordance with GAAP (non-GAAP). Recent
legislative and regulatory changes discourage the use of and emphasis
on non-GAAP financial metrics and require companies to explain why
non-GAAP financial metrics are relevant to management and investors.
We believe that the inclusion of these non-GAAP financial measures
helps investors to gain a more meaningful understanding of our future
prospects, consistent with how management measures and forecasts our
performance, especially when comparing such results to previous
periods or forecasts. Our management uses these non-GAAP measures, in
addition to GAAP financial measures, as the basis for measuring our
core operating performance and comparing such performance to that of
prior periods and to the performance of our competitors. This measure
is also used by management in their financial and operating
decision-making.
Internap defines "normalized net income (loss)" and the comparable
per share calculation as net income (loss) including pro forma
stock-based compensation in periods prior to the adoption of SFAS No.
123R on January 1, 2006. Internap defines "pro forma net income
(loss)" and the comparable per share calculation as net income (loss)
excluding stock-based compensation in periods subsequent to the
adoption of SFAS No. 123R on January 1, 2006. Internap considers
normalized and pro forma net income (loss) and the comparable per
share calculations to be important factors in comparing operating
results before and after our adoption of SFAS No. 123R.
Internap defines "Adjusted EBITDA" as net income, before interest,
taxes, depreciation and amortization, excluding stock-based
compensation expense. Internap considers Adjusted EBITDA to be an
important indicator of the company's operational strength and
performance of its business and a good measure of the company's
historical operating trends.
Adjusted EBITDA eliminates items that are not part of the
company's core operations, such as net interest, and excludes
depreciation and amortization expense, which is based on the Company's
estimate of the useful life of tangible and intangible assets. These
estimates could vary from actual performance of the asset, are based
on historic cost incurred to build out the company's deployed network
and may not be indicative of current or future capital expenditures.
Normalized and pro forma net income (loss), the comparable per
share calculations and Adjusted EBITDA should be considered in
addition to, not as a substitute for, the company's net income, as
well as other measures of financial performance reported in accordance
with GAAP.
Internap does not provide forward-looking guidance for certain
financial data, such as depreciation, amortization, stock-based
compensation, net income (loss) from operations, interest income, cash
generated from operating activities and cash used in investing
activities, and as a result, is not able to provide a reconciliation
of GAAP to non-GAAP financial measures for forward-looking data.
Internap intends to calculate the various non-GAAP financial measures
in future periods consistent with how it was calculated for the three
months ended March 31, 2006 and December 31, 2005 and year ended
December 31, 2005, presented within this press release.
Reconciliation of Non-GAAP Financial Measures
In accordance with the requirements of Regulation G issued by the
Securities and Exchange Commission, the company is presenting the most
comparable GAAP financial measures and reconciling the non-GAAP
financial measures to such comparable GAAP measures.
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INTERNAP NETWORK SERVICES CORPORATION
RECONCILIATION OF NET INCOME (LOSS) TO EBITDA AND
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
(Unaudited, in thousands)
Three Months Ended
------------------------
March 31, December 31,
2006 2005
------------------------
Revenue $ 42,625 $ 40,292
------------------------
Direct cost of revenue, excluding depreciation
and amortization 22,217 21,774
Customer support(a) 2,897 2,531
Product development(a) 1,225 910
Sales and marketing(a) 6,970 6,311
General and administrative(a) 5,190 5,035
Depreciation and amortization 3,932 4,035
Restructuring costs -- 8
Loss (gain) on sale of equipment 2 (15)
------------------------
Income (loss) from operations 192 (297)
Non-operating income, net (349) (120)
------------------------
Net income (loss) $ 541 $ (177)
========================
EBITDA reconciliation:
Net income (loss) $ 541 $ (177)
Depreciation and amortization 3,932 4,035
Income taxes -- --
Interest income, net (173) (97)
------------------------
EBITDA 4,300 3,761
Interest income, net 173 97
Provision for doubtful accounts (23) 420
Non-cash changes in deferred rent 1,116 651
Stock-based compensation expense 1,507 60
Lease incentive -- 713
Other non-cash adjustments (45) (73)
Changes in operating assets and
liabilities:
Accounts receivable 2,002 (2,446)
Inventory, prepaid expenses, deposits
and other assets (759) 49
Accounts payable, accrued liabilities,
deferred revenue and accrued
restructuring charges (2,730) (1,754)
------------------------
Net cash provided by operating activities $ 5,541 $ 1,478
========================
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(a)Includes the following amounts related to equity
awards:
Customer support $ 378 $ --
Product development 159 --
Sales and marketing 585 --
General and administrative 385 60
------------------------
Total $ 1,507 $ 60
========================
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INTERNAP NETWORK SERVICES CORPORATION
RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA AND
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
(Unaudited, in thousands)
Three Months Ended
--------------------------------
March 31, December 31, March 31,
2006 2005 2005
--------------------------------
Revenue $ 42,625 $ 40,292 $ 37,855
------------------------------
Direct cost of revenue, excluding
depreciation and amortization 22,217 21,774 19,887
Customer support(a) 2,897 2,531 2,662
Product development(a) 1,225 910 1,445
Sales and marketing(a) 6,970 6,311 6,326
General and administrative(a) 5,190 5,035 4,490
Depreciation and amortization 3,932 4,035 3,496
Restructuring costs -- 8 --
Loss (gain) on sale of equipment 2 (15) 6
------------------------------
Income (loss) from operations 192 (297) (457)
Non-operating (income) expense, net (349) (120) 113
------------------------------
Net income (loss) $ 541 $ (177) $ (570)
==============================
Adjusted EBITDA reconciliation:
Net income (loss) $ 541 $ (177) $ (570)
Depreciation and amortization 3,932 4,035 3,496
Income taxes -- -- --
Interest (income) expense, net (173) (97) 99
Stock-based compensation expense 1,507 60 --
------------------------------
Adjusted EBITDA 5,807 3,821 3,025
Interest income (expense), net 173 97 (99)
Provision for doubtful accounts (23) 420 363
Non-cash changes in deferred rent 1,116 651 470
Lease incentive -- 713 --
Other non-cash adjustments (45) (73) (32)
Changes in operating assets and
liabilities:
Accounts receivable 2,002 (2,446) (22)
Inventory, prepaid expenses,
deposits and other assets (759) 49 (6)
Accounts payable, accrued
liabilities, deferred revenue and
accrued restructuring charges (2,730) (1,754) (5,400)
------------------------------
Net cash provided by operating
activities $ 5,541 $ 1,478 $ (1,701)
==============================
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(a) Includes the following amounts related to
equity awards:
Customer support $ 378 $ -- $ --
Product development 159 -- --
Sales and marketing 585 -- --
General and administrative 385 60 --
------------------------------
Total $ 1,507 $ 60 $ --
==============================
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INTERNAP NETWORK SERVICES CORPORATION
RECONCILIATION OF NET INCOME (LOSS) AND DILUTED NET INCOME (LOSS)
PER SHARE TO NORMALIZED NET INCOME (LOSS) AND DILUTED NET INCOME
(LOSS) PER SHARE, INCLUDING THE EFFECT OF STOCK-BASED COMPENSATION
(Unaudited, in thousands, except per share data)
Three Months Ended
-------------------
March 31, March 31,
2006 2005
-------------------
Net loss, as reported for prior periods(1) $ N/A $ (570)
Stock-based compensation expense(2) 1,507 2,616
Normalized net income (loss) including the effect of
stock-based compensation expense(3) 541 (3,186)
Diluted net loss per share - reported for prior
periods(1) N/A (0.00)
Stock-based compensation expense, per share(2) (0.00) (0.01)
Diluted normalized net income (loss) per share,
including the effect of stock-based compensation
expense(3) 0.00 (0.01)
(1) Net loss and net loss per share prior to the first quarter of 2006
did not include an expense related to stock options under
Statement of Financial Accounting Standards (SFAS) No. 123 as the
recognition provisions of SFAS No. 123 were not adopted.
(2) Equity-based compensation expense and equity-based compensation
expense per share prior to the first quarter of 2006 is calculated
based on the pro forma application of SFAS No. 123 as previously
disclosed in the footnotes to Internap's financial statements.
(3) Net loss and net loss per share prior to the first quarter of 2006
is based on the pro forma application of SFAS No. 123 as
previously disclosed in the footnotes to Internap's financial
statements.
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INTERNAP NETWORK SERVICES CORPORATION
RECONCILIATION OF NET INCOME (LOSS) AND DILUTED NET INCOME (LOSS)
PER SHARE TO PRO FORMA NET INCOME (LOSS) AND DILUTED NET INCOME (LOSS)
PER SHARE, EXCLUDING THE EFFECT OF STOCK-BASED COMPENSATION EXPENSE
(Unaudited, in thousands, except per share data)
Three Months Ended
----------------------
March 31, December 31,
2006 2005
----------------------
GAAP net income (loss), as reported(1) $ 541 $ (177)
Stock-based compensation expense 1,507 60
----------------------
Pro forma net income (loss) $ 2,048 $ (117)
======================
GAAP basic and diluted net income (loss) per
share $ 0.00 $ (0.00)
Pro forma basic and diluted net income (loss)
per share $ 0.01 $ (0.00)
(1) Net loss and net loss per share prior to the first quarter of 2006
did not include an expense related to stock options under
Statement of Financial Accounting Standards (SFAS) No. 123 as the
recognition provisions of SFAS No. 123 were not adopted.
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