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.
-0- *T 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 -0- *T 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
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