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66
stock during the period. Stock options to purchase approximately 600,000 shares of common stock in
Transition 2003 were outstanding but not included in the computation of diluted earnings per share due to
the net loss reported in this period.
Recently Issued Accounting Pronouncements. In December 2004, the FASB issued Statement No. 123
(revised 2004),“Share-Based Payment ” (“SFAS No. 123R”), which replaces SFAS No. 123, “ Accounting for
Stock-Based Compensation,” (“SFAS No. 123”) and supersedes APB Opinion No. 25, “ Accounting for
Stock Issued to Employees.” SFAS No. 123R originally required all share-based payments to employees,
including grants of employee stock options, to be recognized in the financial statements based on their fair
values beginning with the first quarter or annual period after June 15, 2005. On April 21, 2005 the SEC
issued a rule that amends the date of compliance with SFAS No. 123R (“the SEC amendment”). Under
the SEC amendment, SFAS No. 123R must be adopted beginning with the first interim or annual reporting
period of the registrant’s first fiscal year beginning on or after June 15, 2005, which means that we must
adopt SFAS No. 123R by April 1, 2006. The pro forma disclosures previously permitted under SFAS
No. 123no longer will be an alternative to financial statement recognition. Under SFAS No. 123R, we
must determine the appropriate fair value model to be used for valuing share-based payments, the
amortization method for compensation cost and the transition method to be used at date of adoption. The
transition methods include prospective and retroactive adoption. Under the retroactive method, prior
periods may be restated either as of the beginning of the year of adoption or for all periods presented. The
prospective method requires that compensation expense be recorded for all unvested stock options and
restricted stock at the beginning of the first quarter of adoption of SFAS No. 123R, while the retroactive
methods would record compensation expense for all unvested stock options and restricted stock beginning
with the first period restated. We are evaluating the requirements of SFAS No. 123R and believe the
adoption of SFAS No. 123R may have a material impact on our consolidated results of operations and
earnings per share. We have not yet determined the method of adoption or the effect of adopting
SFAS No. 123R, and we have not determined whether the adoption will result in amounts that are similar
to the current pro forma disclosures under SFAS No. 123.
FASB Staff Position (“FSP”) No. 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of 2004” (“FSP 109-2”), provides guidance
under FASB Statement No. 109, “ Accounting for Income Taxes,” with respect to recording the potential
impact of the repatriation provisions of the American Jobs Creation Act of 2004 (the “Jobs Act”) on
enterprises’ income tax expense and deferred tax liability. The Jobs Act was enacted on October 22, 2004.
FSP 109-2 states that an enterprise is allowed time beyond the financial reporting period of enactment to
evaluate the effect of the Jobs Act on its plan for reinvestment or repatriation of foreign earnings for
purposes of applying FASB Statement No. 109. We have not yet completed evaluating the impact of the
repatriation provisions. Accordingly, as provided for in FSP 109-2, we have not adjusted our tax expense or
deferred tax liability to reflect the repatriation provisions of the Jobs Act.
Pervasiveness of Estimates. The preparation of financial statements in conformitywith accounting
principles generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilitiesat the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates. The most significant
estimates relate to licenses, software development, and the allowance for price protection, returns and
doubtful accounts.
Reclassifications. Certain reclassifications have been made to the prior periods consolidated financial
statements to conform to current period consolidated financial statements.