Safenet (NASDAQ:SFNT)
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SafeNet (NASDAQ:SFNT), setting the standard for information security,
today announced estimated results for the third quarter ended September
30, 2006.
Estimated revenues for the three-month period ended September 30, 2006,
increased 22 percent to $76.8 million, compared to $62.9 million for the
same period in 2005. Excluding the Eracom acquisition, year-over-year
revenue growth was 17 percent.
SafeNet is not providing detailed non-GAAP financials for the quarter
ended September 30, 2006 due to the previously announced review and
analysis of SafeNet’s historical stock option
grants. The accompanying discussion of estimated results, along with the
related financial tables, are consistent with generally accepted
accounting principles (GAAP), however, do not include any adjustments
that will result from that stock option grant review. The Company is
providing estimates of GAAP financial measures that have in past periods
been used to calculate non-GAAP financial information.
Estimated net loss under GAAP for the quarter ended September 30, 2006
was $3.2 million or ($0.15) per share, which compares to a GAAP net
income of $0.2 million, or $0.01 per diluted share, for the same period
of 2005. Estimated GAAP net loss includes pre-tax amounts of $6.4
million of costs reflecting restatement-related costs which include
legal and other professional fees associated with stock option
accounting issues, $4.8 million for amortization of acquired intangibles
and $3.5 million for the expensing of stock options in accordance with
FAS 123R. The assumed effective income tax rate is 35 percent.
SafeNet currently anticipates reporting its results entirely in GAAP
beginning the first quarter of 2007. The Company anticipates continuing
to provide estimates of GAAP financial measures that have in past
periods been used to calculate non-GAAP financial information.
Third Quarter 2006 Financial Highlights
-- Cash, cash equivalents and short term investments was $328.5
million as of September 30, 2006, as compared to $342.7 million
from December 31, 2005. The September 30 amount does not give
effect to the anticipated repayment by the Company of principal,
interest and other amounts relating to its $250 million of
outstanding convertible subordinated notes. The Company expects
the total repayment amount to be approximately $254 million.
-- Estimated operating cash flow was approximately $14 million for
the third quarter of 2006 and approximately $40 million for the
nine months ended September 30, 2006. This compares to $4.0
million and $21 million for the same period of 2005.
Walter W. Straub, Chairman and Interim CEO of SafeNet, stated, “This
is the second consecutive quarter of strong performance across all areas
of SafeNet’s businesses. We are particularly
pleased to have been able to deliver 17 percent year-over-year revenue
growth, excluding acquisitions. Commercial Enterprise continued its
recovery with sequential revenue growth and improved profitability. Some
of the drivers that could help continue what we hope develops into a
trend include growing momentum from our data at rest products,
strengthening of our authentication products from initiatives like
HSPD-12 and the SWIFT business that is expected to positively impact the
next several quarters. Beyond Commercial Enterprise, we continue to see
very strong momentum from the Classified Government business emanating
from the U.S. Government’s Cryptographic
Modernization Initiative, continued and more widespread adoption of our
embedded security technologies from OEM and strength from our online
content protection business out of Rights Management.”
Mr. Straub continued, “Separately, progress
has been made with respect to the stock option granting issues. We have
identified the impacted periods and estimated compensation expenses. Our
objective now is to file the second quarter 2006 Form 10-Q as soon as is
practicable, with a goal to do so during this fourth quarter. I believe
it is noteworthy that despite the distractions, the Company continued to
move forward and performed well during the quarter.”
Third Quarter 2006 Business Highlights
Customer Wins
-- SafeNet announced that SWIFT selected SafeNet as a provider of
Hardware Security Modules (HSM) and authentication tokens for its
customers to use on its worldwide financial services network.
SafeNet's Luna HSMs and iKey authentication tokens will be used to
protect PKI operations on the SWIFT financial services network.
-- An Asian government selected SafeNet's high speed ethernet
encryptor, the first sale of these products in the region.
-- Romax Technology, a leading provider of software and consulting to
the global transmission industry, selected SafeNet's Sentinel RMS
to replace its existing license management system: FlexLM from
Macrovision. The implementation of SafeNet's licensing and
fulfillment will enable Romax to ensure effective rights control
of its high-value engineering design software. SafeNet's Sentinel
RMS will also allow Romax to streamline development and gain
better control and understanding over their products in order to
generate new revenue opportunities and earn fair compensation.
-- The GL Company, distributor of instrument-based learning systems,
and Jetcam France, developer of PSM OEE (Overall Equipment
Effectiveness), chose SafeNet's Sentinel Hardware Keys to protect
their software. Sentinel Keys are software rights management
tokens that protect software vendors from unauthorized use or
distribution of their products.
-- Fourteen countries including Australia, Finland, France, Iceland,
New Zealand, Hong Kong, Singapore and Thailand selected SafeNet's
HSMs to secure the Electronic Passport Projects. E-Passport
Projects are managed by local government immigration departments
as a preventive measure to combat irregular immigration and
unauthorized data alteration.
-- Azaire Networks, a leading provider of Fixed Mobile Convergence
(FMC) solutions, completed deployment of SafeNet's QuickSec Server
Toolkit with its IP Converged Network Platform (IP-CNP). This
successful deployment demonstrates how the integration of industry
leading solutions can help protect service providers and
subscribers against threats, such as fraud, privacy violations and
denial of service attacks.
Product and Other Business Developments
-- SafeNet launched Sentinel RMSe, the only feature control and
licensing solution designed specifically for embedded systems.
Sentinel RMSe allows embedded systems vendors to increase
profitability by pricing, packaging, and managing the software
that powers their embedded devices according to market needs.
-- SafeEnterprise(TM) SONET/SDH OC-3, OC-12, and OC-48 Encryptors
have received Federal Information Processing Standards (FIPS)
140-2, Level 3 approval, making them widely recognized as highly
secure.
-- SafeNet announced the launched www.HSPD-12.org, a Web site
developed by the members of the HSPD-12 Interoperability
Consortium to provide government agencies and systems integrators
with information on available solutions necessary to comply with
White House-issued Homeland Security Directive (HSPD) 12. The
directive mandates that all Federal employees and contractors need
to use a smartcard as identification badges for physical access
and logical access to IT resources.
Share Repurchase Program – On May 4,
2006, the Company’s Board of Directors
approved a share repurchase program authorizing the repurchase of up to
$50 million of the Company’s common stock.
The Company completed this program on July 24, 2006, using approximately
$16 million during the third quarter. The program resulted in the
repurchase of a total of 3.1 million shares of common stock.
Stock Option Granting Issues Summary and Update
-- SafeNet announced that it was not able to file the Form 10-Q for
the quarter ended June 30, 2006 by the early October timeframe
previously disclosed, and it is now working towards filing this
Form 10-Q during the fourth quarter of 2006. As expected, in
connection with this delay, SafeNet received a purported notice of
acceleration from Citibank, N.A., Trustee, under the Indenture
relating to the issuance of its $250 million 2 1/2% Convertible
Subordinated Notes Due 2010 ("Notes") and the Company is preparing
to repay these Notes.
-- SafeNet concluded that certain option grants made between 2000 and
2005, including grants to directors, officers and employees, were
or likely were accounted for using incorrect measurement dates
under applicable accounting rules in effect at the time, and that
material non-cash, stock-based compensation expenses related to
these option grants will have to be recorded. The Company's work
in this area is continuing.
-- New executive appointments were made following the resignations of
Anthony A. Caputo, Chairman and Chief Executive Officer and Carole
Argo, President and Chief Operating Officer
-- Walter W. Straub was appointed Chairman and Interim Chief
Executive Officer
-- Chris Fedde was appointed President and Chief Operating Officer
-- John W. Frederick was appointed Interim Chief Financial Officer
Current Business Outlook for Fourth Quarter 2006
The following statements are based on current expectations. These
statements are forward-looking, and actual results may differ
materially. These statements do not reflect the potential impact of any
mergers, acquisitions or other business combinations that may be
completed after the date of this release.
During the quarter, SafeNet’s corporate
representatives may reiterate the Company’s
published Business Outlook during private meetings with investors,
investment analysts, the media and others. Prior to the start of SafeNet’s
quiet period for the fourth quarter of 2006, the public can continue to
rely on the Business Outlook set forth in this press release as being
SafeNet’s current expectations unless SafeNet
publishes a notice stating otherwise. During the quiet period, SafeNet
and its corporate representatives will not comment concerning the
previously published Business Outlook and previously published guidance
should no longer be considered the Company’s
then current Outlook. During the quiet period, the Company’s
press releases and filings with the SEC on Forms 10-K and 10-Q should be
considered historical, speaking as of prior to the quiet period only and
not subject to update by the Company. SafeNet’s
quiet period at the end of the fourth quarter is expected to run from
December 18, 2006 until financial results are released in February 2007.
This period may be affected by any delay in the filing of the Company’s
financial statements.
These estimates and statements may be impacted by the results of the
Company’s ongoing investigation of its past
stock option granting practices as described more fully above.
For the quarter ending December 31, 2006, SafeNet currently expects to
achieve revenues in the range of $78 to $82 million.
For the year ending December 31, 2006, SafeNet is narrowing and slightly
increasing its revenue outlook and currently expects to achieve revenues
in the range of $288 to $292 million.
GAAP net income will include pre-tax amounts pertaining to: (i)
acquisition-related charges, primarily consisting of amortization of
acquired intangibles estimated to be approximately $5 million for the
quarter ending December 31, 2006 and approximately $20 million for the
year ending December 31, 2006; and (ii) compensation expense associated
with the expensing of stock options in accordance with FAS 123R before
the effect of restating grant measurement dates as more fully described
above, estimated to be approximately $4 million for the quarter ending
December 31, 2006 and approximately $13 million for the year ending
December 31, 2006. The Company does not expect to exclude any additional
integration charges for the quarter ending December 31, 2006 as the
integrations are essentially complete.
Conference Call
As previously announced, SafeNet is hosting a conference call today at
5:00 pm EDT. To join SafeNet in the conference call, dial 1-866-356-4441
and use passcode 78872838 within the United States. If you are calling
from outside the U.S., please dial 617-597-5396 and use the same
passcode. The conference call will also be available via live webcast at http://www.safenet-inc.com/safenetinvestor/index.asp.
A replay of the conference call will be immediately available via
webcast on SafeNet’s Investor Relations site.
About SafeNet, Inc.
SafeNet is a global leader in information security. Founded more than 20
years ago, the Company provides complete security utilizing its
encryption technologies to protect communications, intellectual property
and digital identities, and offers a full spectrum of products including
hardware, software, and chips. ARM, Bank of America, Cisco Systems, the
Departments of Defense and Homeland Security, Adobe, Samsung, Texas
Instruments, the U.S. Internal Revenue Service and scores of other
customers entrust their security needs to SafeNet. For more information,
visit www.safenet-inc.com.
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995
Statements contained in this document that are not historical facts,
including, without limitation, statements relating to the estimated
impact of expensing stock options under FAS 123R, could
be deemed to be forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements are based on management’s
current expectations and beliefs, are not guarantees of future
performance and are subject to a number of risks, uncertainties and
assumptions that could cause actual results to differ materially from
those described in the forward-looking statements, such as, among
others, economic, business, competitive, and/or regulatory factors
affecting SafeNet’s business generally,
including those set forth in SafeNet’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2005 and its
other filings with the Securities and Exchange Commission, including its
Quarterly Reports on Form 10-Q and its Current Reports on Form 8-K. If
any of these risks or uncertainties materializes or any of these
assumptions proves incorrect, SafeNet’s
results could differ materially from the expectations in these
statements. SafeNet assumes no obligation and does not intend to update
or alter these forward-looking statements, whether as a result of new
information, future events, or otherwise.
Editor’s Note: SafeNet, Sentinel, iKey and
QuickSec are registered trademarks and SafeXcel is a trademark of
SafeNet. All other trademarks are the property of their respective
owners.
SAFENET, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited and estimated - In thousands, except per share amounts)
September 30,
December 31,
2006
2005 (A)
Assets
Current assets:
Cash and cash equivalents
$ 59,661
$ 63,934
Short term investments
268,814
278,785
Accounts receivable, net of allowance for doubtful accounts
43,546
67,722
Inventories, net of reserve
26,606
22,176
Unbilled costs and fees
1,876
4,025
Deferred income taxes
9,563
9,575
Other current assets
13,263
5,874
Total current assets
423,329
452,091
Equipment and leasehold improvements, net of accumulated
18,618
17,904
Computer software development costs, net of accumulated
4,355
3,886
Goodwill
341,118
339,785
Intangible assets, net of accumulated amortization
117,508
132,318
Other assets
2,370
8,168
Total assets
$ 907,298
$ 954,152
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
$ 14,041
$ 19,770
Accrued salaries and commissions
12,543
14,007
Advance payments and deferred revenue
12,756
11,009
Accrued warranty
4,393
4,443
Other accrued expenses
19,254
12,768
Accrued income taxes
11,145
9,385
Current portion of long-term debt
250,000
-
Total current liabilities
324,132
71,382
Long-Term Debt
-
250,000
Deferred tax liability
36,650
43,599
Other long-term liabilities
5,524
6,040
Total liabilities
366,306
371,021
Stockholders' equity:
Preferred stock, $.01 par value per share
Authorized 500 shares, none issued and outstanding
-
-
Common stock, $.01 par value per share
256
253
Additional paid-in capital
664,867
651,745
Treasury stock
(99,911)
(49,990)
Accumulated other comprehensive income
3,694
2,225
Accumulated deficit
(27,914)
(21,102)
Net stockholders' equity
540,992
583,131
Total liabilities and stockholders' equity
$ 907,298
$ 954,152
(A) Derived from the audited financial statements as of December 31,
2005.
The above estimates and statements may be impacted by the results of
the Company's ongoing investigation of its past stock option
granting practices.
Certain prior period amounts were reclassified to conform to current
period presentation.
SAFENET, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and estimated - In thousands, except per share amounts)
Three Months Ended
Nine Months Ended
Sept. 30,
Sept. 30,
Sept. 30,
Sept. 30,
2006
2005
2006
2005
Revenues
Licenses and royalties
$ 5,410
$ 3,501
$ 14,242
$ 11,752
Products
63,000
51,515
170,236
154,689
Service and maintenance
8,361
7,929
25,308
19,358
76,771
62,945
209,786
185,799
Cost of revenues
Licenses and royalties
10
4
23
158
Products
35,966
26,903
95,181
77,980
Service and maintenance
1,852
2,394
5,984
4,889
Amortization of acquired intangible assets
3,252
3,488
9,866
10,468
Cost of revenues
41,080
32,789
111,054
93,495
Gross profit
35,691
30,156
98,732
92,304
Restructuring charges
-
(9)
613
2,573
Research and development expenses
9,678
9,435
28,302
27,063
Sales and marketing expenses
13,089
14,058
38,393
37,592
General and administrative expenses
16,110
5,823
37,184
17,384
Write-off of acquired in-process research and development costs
-
(1,119)
-
1,196
Costs of integration of acquired companies
174
834
2,131
6,567
Amortization of acquired intangible assets
1,580
2,267
5,108
6,633
Total operating expenses
40,631
31,289
111,731
99,008
Operating loss
(4,940)
(1,133)
(12,999)
(6,704)
Interest and other income, net
1,410
1,177
4,015
3,826
Loss before income taxes
(3,530)
44
(8,984)
(2,878)
Income tax benefit (expense)
360
191
2,172
(609)
Net loss
$ (3,170)
$ 235
$ (6,812)
$ (3,487)
Loss per common share:
Basic
$ (0.15)
$ 0.01
$ (0.30)
$ (0.14)
Diluted
$ (0.15)
$ 0.01
$ (0.30)
$ (0.14)
Shares used in computation:
Basic
21,156
25,009
22,914
24,719
Diluted
21,156
25,935
22,914
24,719
The above estimates and statements may be impacted by the results of
the Company's ongoing investigation of its past stock option
granting practices.
Certain prior period amounts were reclassified to conform to current
period presentation.
SafeNet (NASDAQ:SFNT), setting the standard for information
security, today announced estimated results for the third quarter
ended September 30, 2006.
Estimated revenues for the three-month period ended September 30,
2006, increased 22 percent to $76.8 million, compared to $62.9 million
for the same period in 2005. Excluding the Eracom acquisition,
year-over-year revenue growth was 17 percent.
SafeNet is not providing detailed non-GAAP financials for the
quarter ended September 30, 2006 due to the previously announced
review and analysis of SafeNet's historical stock option grants. The
accompanying discussion of estimated results, along with the related
financial tables, are consistent with generally accepted accounting
principles (GAAP), however, do not include any adjustments that will
result from that stock option grant review. The Company is providing
estimates of GAAP financial measures that have in past periods been
used to calculate non-GAAP financial information.
Estimated net loss under GAAP for the quarter ended September 30,
2006 was $3.2 million or ($0.15) per share, which compares to a GAAP
net income of $0.2 million, or $0.01 per diluted share, for the same
period of 2005. Estimated GAAP net loss includes pre-tax amounts of
$6.4 million of costs reflecting restatement-related costs which
include legal and other professional fees associated with stock option
accounting issues, $4.8 million for amortization of acquired
intangibles and $3.5 million for the expensing of stock options in
accordance with FAS 123R. The assumed effective income tax rate is 35
percent.
SafeNet currently anticipates reporting its results entirely in
GAAP beginning the first quarter of 2007. The Company anticipates
continuing to provide estimates of GAAP financial measures that have
in past periods been used to calculate non-GAAP financial information.
Third Quarter 2006 Financial Highlights
-0-
*T
-- Cash, cash equivalents and short term investments was $328.5
million as of September 30, 2006, as compared to $342.7 million
from December 31, 2005. The September 30 amount does not give
effect to the anticipated repayment by the Company of principal,
interest and other amounts relating to its $250 million of
outstanding convertible subordinated notes. The Company expects
the total repayment amount to be approximately $254 million.
-- Estimated operating cash flow was approximately $14 million for
the third quarter of 2006 and approximately $40 million for the
nine months ended September 30, 2006. This compares to $4.0
million and $21 million for the same period of 2005.
*T
Walter W. Straub, Chairman and Interim CEO of SafeNet, stated,
"This is the second consecutive quarter of strong performance across
all areas of SafeNet's businesses. We are particularly pleased to have
been able to deliver 17 percent year-over-year revenue growth,
excluding acquisitions. Commercial Enterprise continued its recovery
with sequential revenue growth and improved profitability. Some of the
drivers that could help continue what we hope develops into a trend
include growing momentum from our data at rest products, strengthening
of our authentication products from initiatives like HSPD-12 and the
SWIFT business that is expected to positively impact the next several
quarters. Beyond Commercial Enterprise, we continue to see very strong
momentum from the Classified Government business emanating from the
U.S. Government's Cryptographic Modernization Initiative, continued
and more widespread adoption of our embedded security technologies
from OEM and strength from our online content protection business out
of Rights Management."
Mr. Straub continued, "Separately, progress has been made with
respect to the stock option granting issues. We have identified the
impacted periods and estimated compensation expenses. Our objective
now is to file the second quarter 2006 Form 10-Q as soon as is
practicable, with a goal to do so during this fourth quarter. I
believe it is noteworthy that despite the distractions, the Company
continued to move forward and performed well during the quarter."
Third Quarter 2006 Business Highlights
Customer Wins
-0-
*T
-- SafeNet announced that SWIFT selected SafeNet as a provider of
Hardware Security Modules (HSM) and authentication tokens for its
customers to use on its worldwide financial services network.
SafeNet's Luna HSMs and iKey authentication tokens will be used to
protect PKI operations on the SWIFT financial services network.
-- An Asian government selected SafeNet's high speed ethernet
encryptor, the first sale of these products in the region.
-- Romax Technology, a leading provider of software and consulting to
the global transmission industry, selected SafeNet's Sentinel RMS
to replace its existing license management system: FlexLM from
Macrovision. The implementation of SafeNet's licensing and
fulfillment will enable Romax to ensure effective rights control
of its high-value engineering design software. SafeNet's Sentinel
RMS will also allow Romax to streamline development and gain
better control and understanding over their products in order to
generate new revenue opportunities and earn fair compensation.
-- The GL Company, distributor of instrument-based learning systems,
and Jetcam France, developer of PSM OEE (Overall Equipment
Effectiveness), chose SafeNet's Sentinel Hardware Keys to protect
their software. Sentinel Keys are software rights management
tokens that protect software vendors from unauthorized use or
distribution of their products.
-- Fourteen countries including Australia, Finland, France, Iceland,
New Zealand, Hong Kong, Singapore and Thailand selected SafeNet's
HSMs to secure the Electronic Passport Projects. E-Passport
Projects are managed by local government immigration departments
as a preventive measure to combat irregular immigration and
unauthorized data alteration.
-- Azaire Networks, a leading provider of Fixed Mobile Convergence
(FMC) solutions, completed deployment of SafeNet's QuickSec Server
Toolkit with its IP Converged Network Platform (IP-CNP). This
successful deployment demonstrates how the integration of industry
leading solutions can help protect service providers and
subscribers against threats, such as fraud, privacy violations and
denial of service attacks.
*T
Product and Other Business Developments
-0-
*T
-- SafeNet launched Sentinel RMSe, the only feature control and
licensing solution designed specifically for embedded systems.
Sentinel RMSe allows embedded systems vendors to increase
profitability by pricing, packaging, and managing the software
that powers their embedded devices according to market needs.
-- SafeEnterprise(TM) SONET/SDH OC-3, OC-12, and OC-48 Encryptors
have received Federal Information Processing Standards (FIPS)
140-2, Level 3 approval, making them widely recognized as highly
secure.
-- SafeNet announced the launched www.HSPD-12.org, a Web site
developed by the members of the HSPD-12 Interoperability
Consortium to provide government agencies and systems integrators
with information on available solutions necessary to comply with
White House-issued Homeland Security Directive (HSPD) 12. The
directive mandates that all Federal employees and contractors need
to use a smartcard as identification badges for physical access
and logical access to IT resources.
*T
Share Repurchase Program - On May 4, 2006, the Company's Board of
Directors approved a share repurchase program authorizing the
repurchase of up to $50 million of the Company's common stock. The
Company completed this program on July 24, 2006, using approximately
$16 million during the third quarter. The program resulted in the
repurchase of a total of 3.1 million shares of common stock.
Stock Option Granting Issues Summary and Update
-0-
*T
-- SafeNet announced that it was not able to file the Form 10-Q for
the quarter ended June 30, 2006 by the early October timeframe
previously disclosed, and it is now working towards filing this
Form 10-Q during the fourth quarter of 2006. As expected, in
connection with this delay, SafeNet received a purported notice of
acceleration from Citibank, N.A., Trustee, under the Indenture
relating to the issuance of its $250 million 2 1/2% Convertible
Subordinated Notes Due 2010 ("Notes") and the Company is preparing
to repay these Notes.
-- SafeNet concluded that certain option grants made between 2000 and
2005, including grants to directors, officers and employees, were
or likely were accounted for using incorrect measurement dates
under applicable accounting rules in effect at the time, and that
material non-cash, stock-based compensation expenses related to
these option grants will have to be recorded. The Company's work
in this area is continuing.
-- New executive appointments were made following the resignations of
Anthony A. Caputo, Chairman and Chief Executive Officer and Carole
Argo, President and Chief Operating Officer
-- Walter W. Straub was appointed Chairman and Interim Chief
Executive Officer
-- Chris Fedde was appointed President and Chief Operating Officer
-- John W. Frederick was appointed Interim Chief Financial Officer
*T
Current Business Outlook for Fourth Quarter 2006
The following statements are based on current expectations. These
statements are forward-looking, and actual results may differ
materially. These statements do not reflect the potential impact of
any mergers, acquisitions or other business combinations that may be
completed after the date of this release.
During the quarter, SafeNet's corporate representatives may
reiterate the Company's published Business Outlook during private
meetings with investors, investment analysts, the media and others.
Prior to the start of SafeNet's quiet period for the fourth quarter of
2006, the public can continue to rely on the Business Outlook set
forth in this press release as being SafeNet's current expectations
unless SafeNet publishes a notice stating otherwise. During the quiet
period, SafeNet and its corporate representatives will not comment
concerning the previously published Business Outlook and previously
published guidance should no longer be considered the Company's then
current Outlook. During the quiet period, the Company's press releases
and filings with the SEC on Forms 10-K and 10-Q should be considered
historical, speaking as of prior to the quiet period only and not
subject to update by the Company. SafeNet's quiet period at the end of
the fourth quarter is expected to run from December 18, 2006 until
financial results are released in February 2007. This period may be
affected by any delay in the filing of the Company's financial
statements.
These estimates and statements may be impacted by the results of
the Company's ongoing investigation of its past stock option granting
practices as described more fully above.
For the quarter ending December 31, 2006, SafeNet currently
expects to achieve revenues in the range of $78 to $82 million.
For the year ending December 31, 2006, SafeNet is narrowing and
slightly increasing its revenue outlook and currently expects to
achieve revenues in the range of $288 to $292 million.
GAAP net income will include pre-tax amounts pertaining to: (i)
acquisition-related charges, primarily consisting of amortization of
acquired intangibles estimated to be approximately $5 million for the
quarter ending December 31, 2006 and approximately $20 million for the
year ending December 31, 2006; and (ii) compensation expense
associated with the expensing of stock options in accordance with FAS
123R before the effect of restating grant measurement dates as more
fully described above, estimated to be approximately $4 million for
the quarter ending December 31, 2006 and approximately $13 million for
the year ending December 31, 2006. The Company does not expect to
exclude any additional integration charges for the quarter ending
December 31, 2006 as the integrations are essentially complete.
Conference Call
As previously announced, SafeNet is hosting a conference call
today at 5:00 pm EDT. To join SafeNet in the conference call, dial
1-866-356-4441 and use passcode 78872838 within the United States. If
you are calling from outside the U.S., please dial 617-597-5396 and
use the same passcode. The conference call will also be available via
live webcast at http://www.safenet-inc.com/safenetinvestor/index.asp.
A replay of the conference call will be immediately available via
webcast on SafeNet's Investor Relations site.
About SafeNet, Inc.
SafeNet is a global leader in information security. Founded more
than 20 years ago, the Company provides complete security utilizing
its encryption technologies to protect communications, intellectual
property and digital identities, and offers a full spectrum of
products including hardware, software, and chips. ARM, Bank of
America, Cisco Systems, the Departments of Defense and Homeland
Security, Adobe, Samsung, Texas Instruments, the U.S. Internal Revenue
Service and scores of other customers entrust their security needs to
SafeNet. For more information, visit www.safenet-inc.com.
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995
Statements contained in this document that are not historical
facts, including, without limitation, statements relating to the
estimated impact of expensing stock options under FAS 123R, could be
deemed to be forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements are based on
management's current expectations and beliefs, are not guarantees of
future performance and are subject to a number of risks, uncertainties
and assumptions that could cause actual results to differ materially
from those described in the forward-looking statements, such as, among
others, economic, business, competitive, and/or regulatory factors
affecting SafeNet's business generally, including those set forth in
SafeNet's Annual Report on Form 10-K for the fiscal year ended
December 31, 2005 and its other filings with the Securities and
Exchange Commission, including its Quarterly Reports on Form 10-Q and
its Current Reports on Form 8-K. If any of these risks or
uncertainties materializes or any of these assumptions proves
incorrect, SafeNet's results could differ materially from the
expectations in these statements. SafeNet assumes no obligation and
does not intend to update or alter these forward-looking statements,
whether as a result of new information, future events, or otherwise.
Editor's Note: SafeNet, Sentinel, iKey and QuickSec are registered
trademarks and SafeXcel is a trademark of SafeNet. All other
trademarks are the property of their respective owners.
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SAFENET, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited and estimated - In thousands, except per share amounts)
September 30, December 31,
2006 2005 (A)
--------------- --------------
Assets
----------------------------------------
Current assets:
Cash and cash equivalents $59,661 $63,934
Short term investments 268,814 278,785
Accounts receivable, net of allowance
for doubtful accounts 43,546 67,722
Inventories, net of reserve 26,606 22,176
Unbilled costs and fees 1,876 4,025
Deferred income taxes 9,563 9,575
Other current assets 13,263 5,874
--------------- --------------
Total current assets 423,329 452,091
Equipment and leasehold improvements,
net of accumulated 18,618 17,904
Computer software development costs, net
of accumulated 4,355 3,886
Goodwill 341,118 339,785
Intangible assets, net of accumulated
amortization 117,508 132,318
Other assets 2,370 8,168
--------------- --------------
Total assets $907,298 $954,152
=============== ==============
Liabilities and Stockholders' Equity
----------------------------------------
Current liabilities:
Accounts payable $14,041 $19,770
Accrued salaries and commissions 12,543 14,007
Advance payments and deferred revenue 12,756 11,009
Accrued warranty 4,393 4,443
Other accrued expenses 19,254 12,768
Accrued income taxes 11,145 9,385
Current portion of long-term debt 250,000 -
--------------- --------------
Total current liabilities 324,132 71,382
Long-Term Debt - 250,000
Deferred tax liability 36,650 43,599
Other long-term liabilities 5,524 6,040
--------------- --------------
Total liabilities 366,306 371,021
Stockholders' equity:
Preferred stock, $.01 par value per
share
Authorized 500 shares, none issued
and outstanding - -
Common stock, $.01 par value per share 256 253
Additional paid-in capital 664,867 651,745
Treasury stock (99,911) (49,990)
Accumulated other comprehensive income 3,694 2,225
Accumulated deficit (27,914) (21,102)
--------------- --------------
Net stockholders' equity 540,992 583,131
--------------- --------------
Total liabilities and stockholders'
equity $907,298 $954,152
=============== ==============
(A) Derived from the audited financial statements as of
December 31, 2005.
The above estimates and statements may be impacted by the results of
the Company's ongoing investigation of its past stock option granting
practices.
Certain prior period amounts were reclassified to conform to current
period presentation.
*T
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SAFENET, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and estimated - In thousands, except per share amounts)
Three Months Ended Nine Months Ended
---------------------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2006 2005 2006 2005
--------- --------- --------- ---------
Revenues
Licenses and royalties $5,410 $3,501 $14,242 $11,752
Products 63,000 51,515 170,236 154,689
Service and maintenance 8,361 7,929 25,308 19,358
--------- --------- --------- ---------
76,771 62,945 209,786 185,799
Cost of revenues
Licenses and royalties 10 4 23 158
Products 35,966 26,903 95,181 77,980
Service and maintenance 1,852 2,394 5,984 4,889
Amortization of acquired
intangible assets 3,252 3,488 9,866 10,468
--------- --------- --------- ---------
Cost of revenues 41,080 32,789 111,054 93,495
--------- --------- --------- ---------
Gross profit 35,691 30,156 98,732 92,304
--------- --------- --------- ---------
Restructuring charges - (9) 613 2,573
Research and development
expenses 9,678 9,435 28,302 27,063
Sales and marketing expenses 13,089 14,058 38,393 37,592
General and administrative
expenses 16,110 5,823 37,184 17,384
Write-off of acquired in-
process research and
development costs - (1,119) - 1,196
Costs of integration of
acquired companies 174 834 2,131 6,567
Amortization of acquired
intangible assets 1,580 2,267 5,108 6,633
--------- --------- --------- ---------
Total operating expenses 40,631 31,289 111,731 99,008
--------- --------- --------- ---------
Operating loss (4,940) (1,133) (12,999) (6,704)
Interest and other income, net 1,410 1,177 4,015 3,826
--------- --------- --------- ---------
Loss before income taxes (3,530) 44 (8,984) (2,878)
Income tax benefit (expense) 360 191 2,172 (609)
--------- --------- --------- ---------
Net loss $(3,170) $235 $(6,812) $(3,487)
========= ========= ========= =========
Loss per common share:
--------- --------- --------- ---------
Basic $(0.15) $0.01 $(0.30) $(0.14)
========= ========= ========= =========
--------- --------- --------- ---------
Diluted $(0.15) $0.01 $(0.30) $(0.14)
========= ========= ========= =========
Shares used in computation:
Basic 21,156 25,009 22,914 24,719
Diluted 21,156 25,935 22,914 24,719
The above estimates and statements may be impacted by the results of
the Company's ongoing investigation of its past stock option granting
practices.
Certain prior period amounts were reclassified to conform to current
period presentation.
*T