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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form10-K
þ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005
OR
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 0-29291
Corillian Corporation
(Exact name of registrant as specified in its charter)
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Oregon |
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91-1795219 |
(State or other Jurisdiction of
Incorporation or Organization) |
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(I.R.S. Employer
Identification Number) |
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3400 NW John Olsen Place Hillsboro, Oregon
(Address of principal executive offices)
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97124
(Zip Code) |
(503) 629-3300
(Telephone number)
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, no par value
(Title of class)
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act of
1933. Yes o No þ
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of
1934 Yes o No þ
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to the filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K is
not contained herein, and will not be contained, to the best of
the registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K or in
any amendment to this
Form 10-K. o
Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer.
Large accelerated
filer o Accelerated
filer þ Non-accelerated
filer o
Indicate by check mark whether the Registrant is shell company
(as defined in Exchange Act
Rule 12b-2). Yes o No þ
The aggregate market value of voting stock held by
non-affiliates of the Registrant was approximately $115,582,409
as of the last business day of the most recently completed
second fiscal quarter (June 30, 2005), based upon the
closing price on the NASDAQ National Market reported for such
date. Shares of Common Stock held by each executive officer and
director and by each person who beneficially held more than 5%
of the outstanding Common Stock and was deemed to be an
affiliate have been excluded. This determination of executive
officer or affiliate status is not necessarily a conclusive
determination for other purposes.
As of February 28, 2006, 44,848,453 shares of Common
Stock were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Report, to the
extent not set forth herein, is incorporated herein by reference
from the Registrant’s definitive proxy statement relating
to the annual meeting of shareholders to be held on May 15,
2006, which definitive proxy statement the Company intends to
file with the Securities and Exchange Commission (the
“SEC”) within 120 days after the end of the
fiscal year to which this Report relates.
FORM 10-K
TABLE OF CONTENTS
1
PART I
Special Note Regarding Forward-Looking Statements
This Annual Report on
Form 10-K and the
documents incorporated herein by reference contain
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements other
than statements of historical fact made in this Annual Report on
Form 10-K are
forward-looking including but not limited to, statements
regarding industry prospects; future results of operations or
position; Corillian’s expectations and beliefs regarding
future revenue growth; the future capabilities and functionality
of Corillian’s products and services; Corillian’s
strategies and intentions regarding acquisitions and their
integration; the outcome of any litigation to which Corillian is
a party; Corillian’s accounting and tax policies;
Corillian’s future strategies regarding investments,
product offerings, research and development, market share, and
strategic relationships and collaboration; Corillian’s
dividend policies; Corillian’s future capital requirements;
and Corillian’s intentions and expectations regarding
credit facilities. These statements relate to future events or
Corillian’s future financial performance. In some cases,
you can identify forward-looking statements by terminology
including “intend,” “could,”
“may,” “will,” “should,”
“expect,” “plan,” “anticipate,”
“believe,” “estimate,” “predict,”
“potential,” “future,” or
“continue,” the negative of these terms or other
comparable terminology. These statements are only predictions.
Actual events or results may differ materially from those
expressed or implied in such forward-looking statements. In
evaluating these statements, you should specifically consider
various factors, including the risks described in greater detail
in Part 1, Item 1A,“Risk Factors,”
Corillian’s registration statements and reports filed with
the Securities and Exchange Commission, and contained in
Corillian’s press releases from time to time.
Corillian does not guarantee future results, levels of
activity, performance or achievements. Corillian does not intend
to update any of the forward-looking statements after the date
of this document to conform them to actual results or to changes
in its expectations.
The following discussion should be read in conjunction with
Corillian’s consolidated financial statements and the
related notes and other financial information appearing
elsewhere in this Annual Report on
Form 10-K.
Overview
Corillian is a leading provider of solutions that enable banks,
credit unions, brokers and other financial service providers to
rapidly deploy Internet-based financial services.
Corillian’s solutions allow consumers to conduct financial
transactions, view personal and market financial information,
pay bills and access other financial services on the Internet.
Corillian provides a set of applications for Internet banking,
online fraud prevention, electronic bill presentment and
payment, targeted marketing, data aggregation, alerts and online
customer relationship management. Corillian’s solutions
integrate into existing database applications and systems and
enable its customers to monitor transactions across all systems
in real time. Corillian’s solutions are also designed to
support multiple lines of business, including small business
banking, corporate banking and credit card management, and to
scale to support millions of users. Current Corillian customers
include J.P. Morgan Chase, The Huntington National Bank,
Capital One, Wachovia Bank and SunTrust Bank.
Corillian was incorporated in Oregon in 1997.
You can access information about Corillian on our website on the
Investor Relations page. The address is
www.corillian.com/investors/. The contents of this
website are not intended to be incorporated by reference into
this report or any other report we file with the SEC. We make
available, free of charge, copies of our Annual Report on
Form 10-K,
Quarterly Reports on
Form 10-Q, Current
Reports on
Form 8-K, and
amendments to these and other reports filed or furnished by us
pursuant to Sections 13(a) and 15(d) of the Securities
Exchange Act of 1934, as amended (the Exchange Act) as soon as
reasonably practicable after filing such material electronically
or otherwise furnishing it to the SEC. To request a copy, send a
written
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request to Corillian Corporation, Attention: Investor Relations,
3400 NW John Olsen Place, Hillsboro, Oregon 97124, and include
the address to which the document should be mailed.
Industry Background
The Internet has become an integral part of the daily lives of
millions of consumers because of the functionality and
convenience it offers. In addition to more traditional uses such
as email, the Internet is being increasingly used to conduct
financial transactions and deliver financial services. Internet
users are increasingly demanding more Internet-based financial
services, such as the ability to move money into various
accounts and to various companies and individuals, to see all of
their accounts with a financial institution in one place, and to
purchase new products online. The benefits that consumers derive
from Internet-based financial services include:
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twenty-four hour, real-time, secure access to information and
financial services from any Internet device; |
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convenient and inexpensive money movement tools; |
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improved personal finance management; and |
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the presentation of comprehensive consolidated financial data. |
The growth in Internet usage and the popularity of personal
finance content have changed the competitive landscape of the
financial service industry by requiring financial institutions
to compete based on the features they offer in the Internet
channel as well as other delivery channels while focusing on
lowering the expenses of their technology infrastructure. Within
this environment, Corillian believes many financial institutions
are recognizing they will require more cost-effective
Internet-based financial solutions with greater functionality to
help them differentiate their service and product offerings and
expand their market share. In addition, financial institutions
will need these solutions to easily integrate with disparate
systems and applications and provide technological efficiencies
and time-to-market
advantages.
Significant challenges are involved in deploying Internet
finance solutions. Most notably, multiple diverse computing
environments, including existing systems, packaged applications,
Internet application servers and other emerging technologies,
must be integrated and must be able to communicate with each
other to provide customers with real-time data and to allow them
to conduct financial transactions. In addition, external
systems, such as those of credit card companies and bill payment
providers, must be integrated with internal systems in a secure
and reliable manner. These technical challenges are magnified by
the speed with which these services must be brought to market.
Most financial institutions do not have the technical skills or
resources to rapidly design and deploy these services. In
addition, although some financial institutions have the
technical skills and resources to develop and deploy Internet
finance solutions, they are subject to significant
time-to-market
competitive pressures. For most of these financial service
providers, internally developing and deploying Internet finance
solutions can be expensive, take years to complete and require
significant ongoing expenses. As a result, many of these
financial service providers are realizing that if they want to
deploy an Internet-based financial product or service and
integrate disparate applications more quickly and efficiently,
they need a comprehensive, outsourced packaged software and
service solution.
The Corillian Solution
Corillian is a leading provider of solutions that enable
financial service providers to deploy Internet-based financial
services and to integrate disparate applications across their
multiple delivery channels and lines of business.
Corillian’s solutions include comprehensive suites of
software that may be combined with its professional services to
form a complete outsourced solution for offering Internet-based
financial services or combined with the personnel of the
financial institution to accelerate the deployment of online
services and reduce the risks and lower the costs for the
financial institution.
Corillian Voyager consists of a software platform and a menu of
applications built upon that platform, all of which Corillian
can provide on a hosted basis or which can run on its
customers’ premises. Corillian
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Voyager integrates with Corillian’s customers’
existing databases and systems and enables them to monitor
transactions across all systems in real time. Corillian has
developed software applications for Internet banking, electronic
bill presentment and payment, online money movement, identity
management, alerts, targeted marketing, data aggregation and
online customer relationship management. Corillian can provide
its customers with wireless delivery capabilities for all of
these applications.
Corillian believes its products and services provide the
following benefits to its customers:
Accelerated Time to Market. Using the Corillian Voyager
platform, financial institutions can deploy Internet-based
financial services to their customers quickly and reliably. In
addition, Corillian provides comprehensive systems integration
and implementation services and customer support to complement
the flexible architecture of Corillian’s solutions.
Highly Scalable and Extensible Platform. Corillian’s
software platform has been designed to be highly scalable to
meet the evolving needs of its customers. Independent laboratory
test results indicate that Corillian Voyager can support
Internet banking programs for more than ten million users. In
addition, Corillian Voyager has been designed using universal
standards, including eXtensible Markup Language for
communication and Open Financial Exchange for financial
transactions. This architecture enables Corillian’s
customers to deploy new Internet-based financial services by
adding applications to Corillian’s platform at any time and
by integrating future applications with any Internet connected
point-of-presence.
Flexibility and Control. Corillian offers its customers
the ability to take total control of the development and
management of Corillian Voyager or to rely on Corillian for
these services. Customers can use their own internal personnel
for implementation, a combination of Corillian personnel and
internal personnel, just Corillian personnel or third parties.
In addition, customers have the option of hosting the Corillian
Voyager platform on their own premises or having the solutions
hosted in our managed facility. Corillian’s customers may
request that Corillian host their solution because they lack
sufficient resources or the appropriate systems to host the
solution on their premises. In addition, Corillian’s
customers can reduce their information technology costs by
outsourcing application hosting services with Corillian.
Corillian offers customers the opportunity to transfer operation
of their solution to their own premises at any time. This
flexibility provides Corillian’s customers with the option
to gain operational control of a deployment over time as their
needs and desires change.
Advanced Technology and Continued Innovation. Corillian
believes its solutions provide a comprehensive solution with a
broad range of applications across multiple lines of business
that can be delivered on the desktop or by wireless access.
Corillian offers certified Internet financial applications using
the Open Financial Exchange data standard, and Corillian has
helped to define industry standards through organizations like
the Web Services Interoperability Organization.
Reduced Cost of Internet Operations. Corillian’s
products lower the costs associated with its customers’
Internet banking operations primarily by reducing the cost of
internal development and hardware requirements. Corillian’s
software solutions provide all of the functionality for
Internet-based financial services in a single comprehensive
package. This eliminates the cost of purchasing, integrating and
installing separate solution components from multiple vendors.
Strategy
Corillian’s objective is to extend its leadership in
Internet finance solutions. To that end, Corillian seeks to
establish Corillian Voyager as the platform of choice for
Internet finance. To achieve this objective, Corillian intends
to pursue the following strategies:
Increase Market Share. To date, Corillian has focused its
sales and marketing efforts to target the largest financial
service providers. Corillian intends to continue targeting
large, industry-leading financial service providers by
increasing its sales and marketing efforts. Corillian has also
successfully developed other markets, including small to
mid-size financial institutions, and Corillian intends to
continue its efforts towards expanding its penetration of these
markets.
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Expand Breadth of Product and Service Offerings.
Corillian’s current financial applications include features
for Internet banking, electronic bill presentment and payment,
online money movement, identity management, interfacing with
personal finance managers through the Open Financial Exchange
data standard, consumer banking, small business banking,
corporate banking, credit and management, alerts and data
aggregation. Corillian recently expanded its product offerings
to include cash management and fraud detection, and Corillian
intends to expand its product offerings to include new
applications, particularly in the area of identity management
and fraud prevention.
Leverage and Expand Strategic Relationships. Corillian
intends to leverage its relationships with leading systems
integrators and value-added resellers to extend its reach and
provide our customers with more comprehensive, customized
solutions. Corillian intends to continue to expand and build
additional relationships with value-added resellers. In
addition, Corillian believes that forging relationships with key
technology vendors is critical to delivering a comprehensive
solution to financial service providers. Corillian’s
strategic partners include Microsoft, NCR Corporation and
Matrix, one of the leading systems integration firms in Israel.
Corillian intends to develop additional relationships to expand
the scope of its functionality, and for co-marketing and
distribution purposes.
Collaborate with Technology Leaders. Corillian’s
products and services adhere to existing industry standards and
have been designed to meet the openness and scalability required
of Internet solutions. Corillian will continue to collaborate
with companies to develop new technologies and to encourage the
adoption and implementation of universal standards that can
foster and simplify the exchange of financial information
through the Internet. Corillian intends to continue investing in
research and development to meet the needs of its customers as
they evolve their Internet offerings.
Products and Services
Corillian’s solutions enable financial institutions,
Internet portals and other Internet financial service providers
to offer their customers a variety of financial services over
the Internet, including Internet banking, electronic bill
presentment and payment, web content management and data
aggregation. Corillian also offers a variety of services to
support its customers throughout the process of implementing and
maintaining Corillian’s solutions. License and professional
services accounted for 67% of consolidated revenues in 2005, 70%
in 2004 and 76% in 2003. Post-contractual support accounted for
26% of consolidated revenues in 2005, 22% in 2004 and 19% in
2003.
Corillian Voyager is a highly secure and reliable software
platform upon which Corillian has built a menu of applications
to support multiple lines of business within banking. Corillian
Voyager has been designed to be highly scalable to meet the
evolving needs of Corillian’s customers. Corillian
currently supports more than 15 million users on a single
instance of Corillian Voyager for its largest customer and can
support even larger volumes. In addition, Corillian Voyager has
been designed using universal standards, including eXtensible
Markup Language for communication and Open Financial Exchange
for financial transactions. This architecture enables
Corillian’s customers to deploy new Internet-based
financial services by adding applications to Corillian’s
platform at any time and by integrating future applications to
any Internet connected
point-of-presence.
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Line of Business Applications |
Consumer Banking. Corillian Consumer Banking enables
financial institutions to offer their retail customers secure,
real-time access to transactional banking services through the
Internet. These services can be delivered to the desktop or
accessed by wireless devices. Internet users can receive their
consolidated account information and transaction history and
conduct financial transactions, such as transfers and loan
payments, over the Internet 24 hours a day, seven days a
week. The financial institutions can choose standard
browser-based user interfaces or more customized Internet
templates and online screens.
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Small Business Banking. Corillian Small Business Banking
enables financial institutions to offer their small business
customers secure, real-time access to account details and money
movement functions through an Internet browser or accounting
packages such as QuickBooks. Businesses can control access to
business banking features, accounts and transaction levels to
provide financial and audit controls for their staff, and can
reconcile accounts instantly.
Corporate Banking. Corillian Corporate Banking provides
financial institutions a way to deliver a complete set of online
money movement services to corporations. Corillian Corporate
Banking integrates seamlessly and in real-time with financial
institution back-office systems. As a result, corporations can
make treasury management decisions based on reliable,
up-to-date information,
and act on them instantly. Corporate banking customers can
transfer funds, view and create information reports, receive
alerts on account activity, view positive pay exceptions, access
lockbox accounts, manage cash concentration and delegate
authority to conduct transactions and view information across
complex organizations.
Credit Card Management. Corillian Credit Card Management
enables financial institutions to offer their credit card
customers secure, real-time access to transactional credit card
services through the Internet. These services can be delivered
to the desktop or accessed by wireless devices. Credit card
users can receive consolidated account information and
transaction history, view statements, pay bills and conduct
other financial transactions over the Internet 24 hours a
day, seven days a week. The financial institutions can choose
standard browser-based user interfaces or more customized
Internet templates and online screens.
Wealth Management. Corillian Wealth Management provides
access to investment accounts within and across financial
institutions, and enables planning and financial management
based on that information. Wealth Management customers can view
their accounts, initiate trades, conduct research, set up watch
lists, make payments, and view stock tickers, market data and
electronic trade confirmations. Further, Corillian Wealth
Management enables advisors, or other authorized
representatives, to perform transactions on behalf of their
customers.
Corillian Payments. Corillian Payments enables financial
service providers to offer their customers electronic bill
payment services and to deliver bills to customers through a
standard Internet page, through supported personal finance
management software, such as Quicken or Microsoft Money, or as a
digital image of a scanned paper bill. A financial service
provider can choose to deliver its own bills, the bills of
direct billing businesses, or the bills of third-party bill
presentment providers, such as CheckFree, Princeton eCom or
Metavante. By consolidating all bill presentment and payment
options, Corillian Payments enables Internet users to pay bills
in the same program where they do most of their financial
transactions. This application also enables financial
institutions to extend their product and service features for
their customers and to present bills on behalf of their business
customers.
Corillian Alerts. Corillian Alerts enables financial
institutions to provide their customers with alerts on various
types of activities. Balance alerts allow customers to define
account balance thresholds (both high and low) that, if
exceeded, will send an alert. Customers can also define
notification rules based on transaction type, statement
availability, and receipt of a secure message. Enhanced alerting
and delivery options allow customers to receive notification for
extended transaction types, such as bill payment, Positive Pay,
ACH, Wire, and transactions awaiting approval via wireless
devices, fax, messenger, and via
text-to-speech, with
user specified priorities.
Corillian eStatements. Corillian eStatements enables
financial institutions to provide their customers with online
statements. The customers are notified when statements are
ready, can view their statement whenever and from wherever they
would like, and need not contend with a paper-based statement.
Corillian OFX. Corillian OFX enables financial
institutions to offer their customers the ability to integrate
their financial information with personal financial management
software, such as Quicken, QuickBooks and Microsoft Money, or
Internet portals such as Yahoo! Finance and MSN MoneyCentral.
Each Corillian solution was designed using the Open Financial
Exchange data standard. This data specifica-
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tion streamlines the process that financial service companies
must employ to connect with financial data centers and to
interface with personal financial management software.
Corillian Register. Corillian Register enables a
financial institution to provide its customers with a
customer-driven online check registry. As a result, a financial
institution’s customer can see all of his or her financial
information from different accounts in one place in a
comprehensive and feature-rich manner and can categorize items
according to his or her defined preferences.
ACH and Wire Transfers. ACH and wire transfers allow
corporate customers to move funds between accounts at any
financial institution, collect receivables from customers, or
electronically pay suppliers, employees, and others. Receivers
and templates improve the ease and efficiency of executing
transfers. Customers can also make electronic state and federal
tax payments using convenient templates that are kept
up-to-date
automatically.
Enterprise Entitlements. Corillian Enterprise Access
Management provides financial institutions and their customers
robust organizational modeling, user management, business rules,
approval workflow, audit logging and on-behalf-of capabilities,
in a simple, yet extremely powerful, authorization system.
Corillian Enterprise Access Management is accessible via Web
services for financial institutions seeking a way to centrally
manage user access across the enterprise.
Corillian Security Solutions. Corillian has several
solutions that help clients reduce the risk of system compromise
and increase the confidence of their online customers. These
offerings are focused on assisting the client in deploying and
maintaining a secure online platform. Security Solutions include:
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Corillian Fraud Detection System. Early Warning system
for Internet-based attacks against web sites; |
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Corillian Intelligent Authentication. Solution designed
to provide multi-layered, multi-factor authentication without
sacrificing usability; |
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Web site Investigation & Forensics. Tools and
techniques for separating normal from abusive or fraudulent web
site activity; |
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Secure Coding Workshop. Workshop covering
state-of-the-art secure
coding techniques for web sites; |
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Delivery System Security Review. Delivery system review
to help ensure resistance to security threats; and |
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Code-level Security Review. Code-level review by Senior
Security Engineers for potential security issues
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Corillian MultiPoint Integrator. Corillian MultiPoint
Integrator is an integration platform combined with a suite of
applications designed to simplify and enhance integration
between multiple applications and legacy systems for financial
institutions, service providers, and data processors. Corillian
MultiPoint Integrator allows over 300 clients to quickly
integrate legacy systems with Web and database applications. The
systems process online, real-time transactions through the
communications hub of Corillian MultiPoint Integrator for home
banking, loan origination, kiosks, teller platforms, call center
systems, or electronic funds transfer networks,.
Corillian offers a menu of professional services designed to
fulfill its customers’ needs throughout the process of
product design, implementation and operation. Corillian’s
services include:
Implementation Services. Corillian’s implementation
services begin during the pre-sales process. Corillian’s
implementation experts perform an analysis of a potential
customer’s product requirements and determine how these
products can best be integrated with the customer’s
existing host infrastructure. Corillian then develops a site
survey and a project plan recommendation. Once Corillian is
chosen to install its
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applications, Corillian’s professional service team works
with the customer to ensure that every solution is integrated
with the customer’s existing financial transaction system
for delivery over the Internet. If necessary, Corillian writes
custom interfaces to handle transaction requests, validate those
requests and convert them to a standard format for
Internet-based presentation or to the Open Financial Exchange
format for delivery to personalized financial management
software. Corillian also customizes its Internet templates to
provide its customers with a user interface that complements its
brand recognition, design elements, color schemes and corporate
logos. The implementation process is generally completed in 60
to 270 days, depending on the complexity of the project.
The fees for Corillian’s implementation services vary from
project to project, depending on the size of the customer and
the products and services selected by the customer.
Hosting Services. Corillian offers hosting services to
its customers that prefer to have Corillian handle all of their
Internet-based financial systems. Under this service option, the
customer’s Corillian Voyager servers reside at
Corillian’s managed facility, and Corillian’s staff
monitors and maintains the servers. Corillian’s services
include weekly log auditing, installation and configuration of
servers, and staff to help its customers manage system
performance and daily operations. Corillian charges a monthly
hosting fee that varies based on the needs of the customer, the
scope of its online services and the solutions deployed.
Consulting Services. By consulting with Corillian’s
staff, Corillian’s customers can select and design an
electronic commerce strategy. In addition to consulting with
Corillian’s customers on the range of products and services
available to them, Corillian helps its customers with product
and Internet site design. For customers that lack in-house
network security professionals, Corillian helps develop the
appropriate network and security protection features to ensure a
secure system.
Support Services. Corillian offers several levels of
technical and maintenance support for its customers. These
levels are designed to meet Corillian’s customers’
needs and those of their customers. Corillian’s support
fees vary based on which level of support the customer selects.
In addition to technical support, Corillian provides annual
maintenance support for each customer. These maintenance
services entitle the customer to updates and modifications of
Corillian’s solutions.
Directory Management Services. Corillian Directory
Management Services enable a financial institution to manage and
consolidate the detailed information about billers needed to
effectively match and route payments to multiple remittance
processors. Directory management tools can be licensed to
automate and analyze the directory content allowing the
financial institution to obtain the highest possible electronic
payment rate. Alternatively, Corillian offers a
subscription-based service that forwards a daily update to the
financial institution’s biller directory that includes
biller adds, changes and deletions from all remittance
providers. The service also includes a monthly analysis of paper
payments that can route electronically with recommended payee
changes, enabling the financial institution to proactively
manage its bill payments, continually optimize payment routing
and improve electronic payment rates.
Training Services. Corillian makes available to its
customers a variety of training services and supporting
materials to help them use Corillian’s applications. All
courses are led by Corillian’s staff and can be conducted
at the customer’s location or Corillian’s headquarters.
Customers
Corillian targets large financial institutions, financial
portals and other financial service providers that are seeking
scalable, reliable and advanced solutions that enable them to
offer Internet-based financial services. Corillian has provided
its solutions primarily to two major industry groups —
large financial institutions (primarily banks) and large credit
unions. In 2005, Wachovia Bank represented 10% of
Corillian’s consolidated revenues.
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Systems and Technology
Corillian Voyager is a scalable platform that uses a
three-tiered architecture, connecting end-users to the existing
host systems of financial institutions. Corillian Voyager routes
and validates requests, formats transaction responses, and
stores and forwards bill payment instructions.
The three layers of the Corillian Voyager architecture each have
a specific functional focus. The Web Server layer is responsible
for presentation interaction with the customer, handling
hyper-text mark-up
language to the browser or the Open Financial Exchange data
standard to the connected financial software or wireless device.
The Transaction Processor layer controls the business logic for
the user’s request, directs the request to the appropriate
host target, and assembles the results. The Host Server layer
interprets and formats the transaction for the existing host
system, then analyzes and returns the data fields from the
response. Optional applications provide incremental services,
such as batch processing of bill payment transactions or
collection of electronic bills.
Corillian’s systems are designed to provide real-time data
acquisition, processing and presentation for applications used
to offer Internet-based financial services. Specific components
and features of the technology Corillian uses to provide these
benefits include:
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Scalable Framework. Each of the layers of Corillian
Voyager is a software component that can be replicated within
the Corillian Voyager configuration for redundancy and
scalability. By adding an incremental component, work is
distributed among servers across a network. |
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Flexible Interfaces. Corillian’s solutions are
designed to integrate with virtually any existing host system,
providing a means for financial service providers to easily
bring existing applications to the Internet. Corillian’s
host server technology allows multiple simultaneous access to
different existing and third-party systems. In addition, browser
interfaces are customizable in form and function, allowing the
financial service provider to display unique branding,
advertising, and extended functionality. |
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Advanced Architecture. The open architecture of Corillian
Voyager enables flexible integration and rapid deployment of
Corillian line of business applications, as well as
Corillian-certified applications from Corillian partners.
Powered by
Microsoft®
Windows Server 2003 and Microsoft.NET, Corillian Voyager is
built to incorporate emerging Internet finance technology. This
architectural standard allows Corillian’s applications to
interoperate with other application servers, such as teller and
call center platforms and automated teller machine delivery
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Open Financial Exchange Data Standard. Corillian’s
solutions employ the Open Financial Exchange data standard,
which was developed by Microsoft, CheckFree and Intuit to
provide a unified specification for the electronic exchange of
financial data among financial institutions, businesses and
consumers over the Internet. This data specification
standardizes the connection to financial data centers and to
personal financial management software. By using the Open
Financial Exchange data standard, all financial information
retrieved from a financial institution can be quickly downloaded
to consumer software programs, such as Microsoft Money and
Quicken. |
Strategic Alliances and Partnerships
Corillian has marketing, technology, and resale alliances with a
number of companies in the technology and financial services
industries and will continue to pursue new alliances with
additional companies within these industries. These alliances
are intended to help Corillian address new vertical markets and
market
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segments and to enable Corillian to provide its customers with
access to additional resources and technology to enhance and
customize Corillian’s solutions. Some of Corillian’s
more significant strategic partners include:
Founded in 1999,
CashEdge®
provides infrastructure that global financial institutions rely
on to extend their online channels and enhance customer
profitability. CashEdge delivers secure Online Money Movement
and Advanced Account Aggregation platforms that power
specialized retail banking and advisor applications. They have
flexible deployment models that provide for a customized, rapid
implementation of both hosted and onsite solutions. Corillian
resells CashEdge solutions as part of an integrated account
aggregation and online money movement solution to financial
institutions.
CheckFree designs, develops and markets services that enable
consumers to make electronic payments and collections, automate
paper-based recurring financial transactions and conduct secure
transactions on the Internet. CheckFree is Corillian’s
primary partner for remittance processing and was a developer
with Intuit and Microsoft of the Open Financial Exchange data
standard. Corillian has developed a number of Voyager interfaces
to CheckFree systems and resells a bill payment service provided
by CheckFree called CheckFree Web.
Microsoft is the publisher of the Windows 2000 Server network,
the Microsoft Money personal financial management program and
Microsoft’s new Money Explorer and MSN Money Professional
products and services, and the provider of the MoneyCentral
financial portal. In 2001, Corillian and Microsoft signed a
multi-year alliance agreement to deliver a joint enterprise
eFinance solution to financial institutions worldwide. The
agreement spans technology development, marketing, sales and
support of solutions based on the Corillian Voyager platform,
Microsoft Windows 2000 and 2003 Server network operating
systems, and .NET, Microsoft’s platform for XML web
services.
In February 2001, Corillian entered into an agreement with NCR
Corporation that provides for NCR’s use of the Corillian
Voyager platform as its core consumer banking component for mid-
to large-sized financial institutions. NCR is a leader in
providing Relationship
Technologytm
solutions to customers worldwide in the retail, financial,
communications, manufacturing, travel and transportation, and
insurance markets. NCR customizes the Corillian Voyager software
to allow financial institutions greater flexibility in
delivering Internet financial services to their customers.
NCR’s Internet banking service is run in a managed server
model from its secure and high availability data centers in
Columbia, Maryland and Dallas, Texas.
In November 2003, Corillian and NCR extended their distribution
agreement to provide NCR the right to license the Corillian
Voyager platform as a part of a shared-server Internet banking
solution to service small-sized financial institutions. Under
the terms of the agreement, NCR will market the Voyager-enabled
solution to its existing shared-server customer base, as well as
new prospects in the United States. The shared-server solution
will be hosted by NCR from its secure and high availability data
center in Columbia, Maryland.
In February 2004, Corillian and NCR amended their distribution
agreement to provide NCR the right to market its Voyager-enabled
solutions to financial institutions in markets around the world.
Matrix Ltd. is a leading systems integration company in Israel.
Employing 2,100 software professionals, Matrix supplies
advanced information technology services to over
500 clients. The company is part of the Formula Group,
Israel’s premier IT group, publicly traded in the United
States (Nasdaq: FORTY – News).
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Matrix has partnered with Corillian to serve as a reseller and
systems integrator to deliver next-generation online banking
services to Israeli banks.
Since 1984, Princeton eCom has continuously delivered Integrated
Payment Solutions, driving growth in the electronic bill payment
industry. It offers an
end-to-end, hosted
solution in Electronic Bill Presentment and Payment
(EBPP) and bill pay for online banking and financial
services. Currently, over 1,400 financial institutions and 130
billers use Princeton eCom’s hosted solution for bill
presentment and electronic payment. Corillian securely
integrates with the Princeton eCom bill payment and bill
presentment-processing engine, providing Corillian financial
services customers a complete Electronic Bill Payment and
Presentment solution.
Founded in January 2000, Quova, Inc. is the leading provider of
geolocation services to online businesses, including five of the
world’s six largest global Internet companies. Quova’s
patented technology provides the geographic location of website
visitors in real time, enabling businesses to detect fraud,
manage digital rights, target content, conduct site analysis and
ensure regulatory compliance. Corillian embeds Quova’s
technology into its Corillian Fraud Detection System and
Intelligent
Authentication(TM)
products to help financial institutions proactively detect and
prevent online fraud.
In July 2000, Corillian entered into an agreement with Yodlee to
develop and market a product that integrates the Corillian
Voyager platform with Yodlee’s data aggregation service.
Under the terms of the agreement, Corillian and Yodlee will
jointly market and sell a new, integrated banking and
aggregation solution to global financial institutions. The
bundled offering utilizes our expertise with the OFX data
standard and Yodlee’s industry-leading data aggregation
platform. The service can either be deployed on a hosted basis
by Yodlee or through the Corillian Voyager platform.
Sales and Marketing
Corillian sells its software and services primarily through its
direct sales organization. As of December 31, 2005,
Corillian’s sales force consisted of 29 personnel,
including one salesperson operating internationally.
Corillian’s direct sales efforts have historically been
focused on domestic financial service providers, such as banks
and credit unions. Corillian complements its direct sales
efforts through joint sales and marketing arrangements with
Internet-based technology vendors, such as NCR.
Corillian’s sales process features a multi-tiered approach
that requires the involvement of its field sales personnel, its
technical professionals and members of Corillian’s senior
management. Corillian’s sales process simultaneously
targets senior business executives, personnel responsible for
Internet-based initiatives and systems engineers. Corillian
employs this multi-leveled approach to accelerate the purchasing
cycle.
Corillian’s products are complex, and sales and
implementations can be delayed due to its customers’
procedures for approving large capital expenditures and
deploying new technologies within their networks. As a result,
Corillian’s sales cycle can vary significantly and
typically ranges from three to nine months.
Research and Development
Corillian’s research and development expenses totaled
$10.8 million in 2005, $6.7 million in 2004 and
$6.0 million in 2003. As of December 31, 2005,
Corillian’s research and development staff consisted of 85
personnel, including 69 engineers. Their development efforts are
focused on:
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Enhancements to Existing Products and Services. Corillian
continues to update and modify its solutions to enhance quality,
performance and scalability, to extend functionality to address
Corillian’s customers’ changing needs, and to take
advantage of improved technology within Corillian’s
industry. |
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Developing New Products and Services. Corillian is
working to expand its product and service offerings. Corillian
intends to expand its product offerings to include new consumer
banking functions, as well as applications for wealth management
and corporate cash management. |
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Participating in Technology Testing and Collaboration.
Corillian has participated in the development of industry data
standards and will continue to collaborate with companies to
develop new technologies and to encourage the adoption and
implementation of open standards that can foster and simplify
the exchange of financial information through the Internet. |
Competition
The market for providing solutions to the Internet financial
services industry is highly competitive, and Corillian expects
that competition will intensify in the future. Corillian
competes with a variety of companies in various segments of the
Internet-based financial services industry, and Corillian’s
competitors vary in size and in the scope and breadth of the
products and services they offer. In the area of Internet
consumer banking, Corillian primarily competes with other
companies that provide outsourced Internet finance solutions to
large financial institutions, including S1 and Financial Fusion.
Within this market segment, Corillian also competes with
companies that offer software platforms designed for internal
development of Internet-based financial services software, such
as IBM’s WebSphere, and the internal information technology
personnel of financial institutions that want to develop their
own solutions. In addition, vendors such as Digital Insight,
FundsXpress, Fidelity National Information Services and Online
Resources and Communications, who primarily target community
financial institutions, occasionally compete with Corillian for
large financial institutions and compete with Corillian
regularly for smaller financial institutions. Several of the
vendors offering data processing services to financial
institutions, including Fiserv, Jack Henry and Metavante, offer
their own Internet banking solutions. Local competition for
Internet consumer banking services is provided by many smaller
Internet service outsourcing companies located throughout the
United States. Corillian’s primary competition for
providing the business banking services that financial
institutions offer their commercial customers are vendors of
cash management systems for large corporations such as FundTech,
Digital Insight and Politzer & Haney.
In the market for consumer online banking solutions, Corillian
estimates that it routinely competes with six competitors. In
terms of providing consumer online banking solutions to the
leading financial institutions in the United States and
supporting the most consumers performing online banking
transactions, Corillian is the leading provider of consumer
online banking solutions. In the market for business online
banking solutions, Corillian estimates that it routinely
competes with seven competitors. Corillian recently entered the
market for business online banking solutions and is building its
position in this market.
Corillian believes that its ability to compete successfully
depends upon a number of factors, including:
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Corillian’s market presence with financial service
providers; |
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the reliability, scalability, security, speed and performance of
Corillian’s solutions and services; |
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the comprehensiveness, ease of use and service level of
Corillian’s products and services; |
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Corillian’s ability to continue to interface with financial
service providers and their technology; |
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Corillian’s pricing policies and the pricing policies of
its competitors and suppliers; |
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the timing of introductions of new products and services by
Corillian and its competitors; and |
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Corillian’s ability to meet its customers’
expectations. |
Corillian expects competition to continue to increase as new
companies enter its market and existing competitors expand their
product lines and services. In addition, many companies that
provide outsourced Internet finance solutions are consolidating,
creating larger competitors with greater resources and more
products than Corillian.
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Intellectual Property
Although Corillian believes its success is more dependent upon
its technical expertise than its proprietary rights,
Corillian’s future success and ability to compete is
dependent in part upon its proprietary technology. Corillian has
received trademark registrations for the name Corillian and its
logo. None of Corillian’s technology is patented, but we
have established an internal patent team of engineers and
in-house counsel to monitor and evaluate as part of the new
product development cycle Corillian’s technologies and
business methods for patentability. Corillian has several patent
applications pending in the United States Patent and Trademark
Office.
Corillian relies on a combination of contractual rights and
copyright, trademark and trade secret laws to establish and
protect its proprietary technology. Corillian requires all of
its employees to sign an assignment of patents and inventions
agreement and generally enter into confidentiality agreements
with Corillian’s employees, consultants, resellers,
customers and potential customers. Corillian also limits access
to and distribution of its source code, and further limits the
disclosure and use of other proprietary information. Corillian
cannot assure that the steps taken in this regard will be
adequate to prevent misappropriation of its technology or that
its competitors will not independently develop technologies that
are substantially equivalent or superior to Corillian’s
technology. Corillian also cannot assure that Corillian will not
infringe upon the intellectual property rights of third parties.
Despite Corillian’s efforts to protect its proprietary
rights, unauthorized parties may attempt to copy or otherwise
obtain or use Corillian’s products or technology. In
addition, the laws of some foreign countries do not protect
Corillian’s proprietary rights to the same extent as do the
laws of the United States. The costs of defending
Corillian’s proprietary rights or claims that Corillian
infringes on third-party proprietary rights may be high.
Government Regulation
Numerous federal agencies have recently adopted rules and
regulations protecting consumer privacy and establishing
guidelines for financial institutions to follow in selecting
technology vendors for solutions such as Corillian’s
solutions. Corillian believes its business does not currently
subject Corillian to any of these rules or regulations that
would adversely affect its business. However, these rules and
regulations are new and may be interpreted to apply to
Corillian’s business in a manner that could make its
business more onerous or costly.
As the Internet continues to evolve, Corillian expects federal,
state and foreign governments to adopt more laws and regulations
covering issues such as user privacy, taxation of goods and
services provided over the Internet, pricing, content and
quality of products and services. If enacted, these laws and
regulations could limit the market for Internet-based financial
services.
If enacted or deemed applicable to Corillian, some laws, rules
or regulations applicable to financial service activities could
render Corillian’s business or operations more costly and
less viable. The financial services industry is subject to
extensive and complex federal and state regulation, and
financial institutions operate under high levels of governmental
supervision. Corillian’s customers must ensure their
services and related products work within the extensive and
evolving regulatory requirements applicable to them. Corillian
may become subject to direct regulation as the market for its
business evolves. Federal, state or foreign authorities could
adopt laws, rules or regulations affecting Corillian’s
business operations, such as requiring Corillian to comply with
data, record keeping and other processing requirements. Any of
these laws, rules or regulations, or new laws, rules and
regulations affecting Corillian or Corillian’s customers,
could lead to increased operating costs and could also reduce
the convenience and functionality of Corillian’s services,
possibly resulting in reduced market acceptance.
A number of proposals at the federal, state and local level and
by the governments of significant foreign countries would, if
enacted, expand the scope of regulation of Internet-based
financial services and could impose taxes on the sale of goods
and services and other Internet activities. Any development that
substantially impairs the growth of the Internet or its
acceptance as a medium for transaction processing could have a
material adverse effect on Corillian’s business, financial
condition and operating results.
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Backlog
As of December 31, 2005, Corillian had a backlog of
unfilled orders of $43.0 million, as compared to a backlog
of $32.4 million as of December 31, 2004. Corillian
expects $26.0 million of its backlog as of
December 31, 2005 will be filled during fiscal year 2006.
Backlog represents contractual customer commitments, including
fees for licenses, professional services, maintenance, hosting
and subscriptions. Backlog is not necessarily indicative of
revenues to be recognized in a specified future period. There
are many factors that would impact Corillian’s filling of
backlog, such as Corillian’s progress in completing
projects for its customers and Corillian’s customers’
meeting anticipated schedules for customer-dependent
deliverables. Corillian provides no assurances that any portion
of its backlog will be filled during any fiscal year or at all
or that its backlog will be recognized as revenues in any given
period.
Employees
As of December 31, 2005, Corillian had a total of 305
employees, consisting of 142 in operations, 9 in marketing, 29
in sales, 85 in research and development, and 40 in general and
administration. None of Corillian’s work force is
unionized. Corillian has not experienced any work stoppages and
considers its relations with its employees to be good.
Certain Financial Information
Financial information relating to foreign and domestic sales and
assets for the three years ended December 31, 2005, 2004
and 2003, is set forth in Note 9(a), “Segment
Information; Geographic Information” of the Notes to
Consolidated Financial Statements attached hereto.
Certain risk factors may affect our business, financial
condition, results of operation and cash flows, or may cause our
actual results to vary from the forward-looking statements
contained in this Annual Report on
Form 10-K. You
should carefully consider the following factors regarding
information included in this Annual Report. The risks and
uncertainties described below are not the only ones Corillian
faces. Additional risks and uncertainties not presently known to
Corillian or that Corillian currently deems immaterial also may
impair its business operations. If any of the following risks
actually occur, Corillian’s business, financial condition
and operating results could be materially adversely affected.
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While Corillian Generated Net Income in the Last Three
Fiscal Years, Corillian Has a History of Losses and May Incur
Losses in Future Periods if it is Not Able to, Among Other
Things, Increase Its Sales to New and Existing Customers |
Until fiscal year 2003, Corillian incurred substantial net
losses in every quarter since it began operations. Corillian
generated net income of approximately $2.7 million,
$10.5 million and $5.1 million during the years ended
December 31, 2005, 2004 and 2003, respectively; however
Corillian incurred minor net losses in the third and fourth
quarters of fiscal 2005. As of December 31, 2005, Corillian
had an accumulated deficit of approximately $94.8 million.
If Corillian does not sign contracts with new customers or
provide additional software and services to existing customers,
it will incur significant operating losses in future years.
Corillian may decide that it is necessary to further reduce its
personnel or other expenses to maintain its operations, and such
reductions may reduce Corillian’s ability to sell its
products and services.
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Corillian’s Quarterly Results Fluctuate Significantly
and May Fall Short of Anticipated Levels, Which May Cause the
Price of Its Common Stock to Decline |
Corillian’s quarterly operating results have varied in the
past, and it expects they will continue to vary from quarter to
quarter in the future. In future quarters, Corillian’s
operating results may be below the expectations of public market
analysts and investors, which could cause the price of its
common stock to decline. Corillian may also announce that
expected financial or operating results for a particular period
will be less than it anticipated, which could cause the price of
Corillian’s common stock to decline. In addition,
14
Corillian has difficulty predicting the volume and timing of
orders and recognizes a substantial portion of its revenues on a
percentage-of-completion
basis. Any delays in closing orders or implementation of
products or services can cause Corillian’s operating
results to fall substantially short of anticipated levels for
any quarter. As a result of these and other factors, Corillian
believes
period-to-period
comparisons of its historical results of operations are not
necessarily meaningful and are not a good predictor of its
future performance.
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A Small Number of Customers Account for a Substantial
Portion of Corillian’s Revenues in Each Period;
Corillian’s Results of Operations and Financial Condition
Could Suffer if it Loses Customers or Fails to Add Additional
Customers to Its Customer Base |
Corillian derives a significant portion of its revenues from a
limited number of customers in each period. Accordingly, if
Corillian fails to close a sale with a major potential customer,
if a contract is delayed or deferred, or if an existing contract
expires or is cancelled and Corillian fails to replace the
contract with new business, its revenues would be adversely
affected. During the year ended December 31, 2005, one
customer individually accounted for 10% of consolidated
revenues. During the year ended December 31, 2004, two
customers individually accounted for more than 10% of
consolidated revenues, and, in total, these two customers
accounted for approximately 29% of consolidated revenues. During
the year ended December 31, 2003, two customers
individually accounted for more than 10% of consolidated
revenues, and, in total, these two customers accounted for
approximately 28% of consolidated revenues. Corillian expects
that a limited number of customers will continue to account for
a substantial portion of its revenues in each quarter in the
foreseeable future. If a customer terminates a Voyager contract
with Corillian early, Corillian would lose ongoing revenue
streams from annual maintenance fees, hosting fees, professional
service fees and potential additional license and service fees
for additional increments of end users and for other Voyager
applications.
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If Corillian, or Its Implementation Partners, Do Not
Effectively Implement Corillian’s Solutions, Corillian May
Not Achieve Anticipated Revenues or Gross Margins |
Corillian’s solutions are complex and must integrate with
complex data processing systems. Implementing Corillian’s
solutions is a lengthy process, generally taking between 60 and
270 days to complete. In addition, Corillian generally
recognizes revenues on a
percentage-of-completion
basis, so its revenues are often dependent on its ability to
complete implementations within the time periods that Corillian
establishes for its projects. Corillian relies on a combination
of internal and outsourced teams for its implementations. If
these teams encounter significant delays in implementing
Corillian’s solutions for a customer or fail to implement
its solutions effectively or at all, Corillian may not be able
to recognize any revenues from the contract or be required to
recognize negative revenues from the contract if its revised
project estimates indicate that Corillian recognized excess
revenues in prior periods. In addition, Corillian may incur
monetary damages or penalties if it is not successful in
completing projects on schedule.
From time to time, Corillian agrees to penalty provisions in its
contracts that require Corillian to make payments to its
customers if Corillian fails to meet specified milestones or
that permit its customers to terminate their contracts with
Corillian if Corillian fails to meet specified milestones. If
Corillian fails to perform in accordance with established
project schedules, Corillian may be forced to make substantial
payments as penalties or refunds and may lose its contractual
relationship with the applicable customers.
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If Corillian’s Goodwill or Amortizable Intangible
Assets Become Impaired Corillian May Be Required to Record a
Significant Charge to Earnings |
Under generally accepted accounting principles, Corillian
reviews its amortizable intangible assets for impairment when
events or changes in circumstances indicate the carrying value
may not be recoverable. Goodwill is required to be tested for
impairment at least annually. Factors that may be considered a
change in circumstances indicating that the carrying value of
our goodwill or amortizable intangible assets may not be
recoverable include a decline in stock price and market
capitalization, future cash flows, and slower growth rates in
our industry. Corillian may be required to record a significant
charge to earnings in its financial statements during the period
in which any impairment of its goodwill or amortizable
intangible assets is determined resulting in an impact on its
results of operations.
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Corillian’s Products’ Lengthy Sales Cycles May
Cause Revenues and Operating Results to Be Unpredictable and to
Vary Significantly from Period to Period |
The sale and implementation of Corillian’s products and
services are often subject to delays because of its
customers’ internal budgets and procedures for approving
large capital expenditures and deploying new technologies within
their networks. As a result, the time between the date of
initial contact with a potential customer and the execution of a
contract with the customer typically ranges from three to nine
months. In addition, Corillian’s prospective
customers’ decision-making processes require Corillian to
provide a significant amount of information to them regarding
the use and benefits of its products. Corillian may expend
substantial funds and management resources during a sales cycle
and fail to make the sale.
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Subscription-Based Licensing of Corillian Products and
Services May Have An Adverse Effect On Near-Term Revenue |
Almost all of Corillian’s revenue is currently derived from
one-time license fees and related annual maintenance fees,
hosting fees, and professional service fees. Corillian also
derives a small percentage of its revenue from licensing its
products and services on a subscription basis. In contrast to
one-time license fees, Corillian must recognize fees for
subscription licenses over the length of the subscription
period. Corillian intends to increase its focus on
subscription-based licenses in the future, which may have an
adverse effect on revenue in the near term.
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Corillian May Not Achieve Anticipated Revenues If
Corillian Does Not Successfully Introduce New Products or
Develop Upgrades or Enhancements to Its Existing Products |
To date, Corillian has derived substantially all of its revenues
from licenses and professional and support services related to
the Corillian Voyager product and its related applications.
Corillian expects to add new products by acquisition, partnering
or internal development and to develop enhancements to its
existing products. New or enhanced products may not be released
on schedule and may not achieve market acceptance. New products
or upgrades to existing products may contain defects when
released, which could damage Corillian’s relationship with
its customers or partners and further limit market acceptance of
its products and services. If Corillian is unable to ship or
implement new or enhanced products and services when planned, or
fail to achieve timely market acceptance of its new or enhanced
products and services, Corillian may lose sales and fail to
achieve anticipated revenues.
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Acquisitions May Be Costly and Difficult to Integrate,
Divert Management Resources or Dilute Shareholder Value |
Corillian has considered and made strategic acquisitions in the
past and in the future may acquire or make investments in
complementary companies, products or technologies. In 2005,
Corillian acquired InteliData Technologies Corporation and qbt
Systems Inc. Corillian may not be able to successfully integrate
these companies, products or technologies. Specifically,
InteliData Technologies has reported internal control
deficiencies without a clear plan to correct those deficiencies,
and qbt has not been subject to the internal control standards
of a public company. The failure to successfully integrate
InteliData and qbt and implement appropriate internal controls
and procedures could have a material adverse effect on the
results of operations and financial condition of the combined
companies. Furthermore, in connection with acquisitions or
investments, Corillian could:
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issue stock that would dilute its current shareholders’
percentage ownership; |
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incur debt and assume liabilities; and |
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incur amortization expenses related to intangible assets or
incur large impairment charges. |
Future acquisitions also could pose numerous additional risks to
Corillian’s operations, including:
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problems combining the purchased operations, technologies or
products; |
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problems integrating the business models of acquisition targets
with Corillian’s; |
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unanticipated costs; |
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diversion of management’s attention from Corillian’s
core business; |
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adverse effects on existing business relationships with
suppliers and customers; |
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entering markets in which Corillian has no or limited prior
experience; and |
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potential loss of key employees, particularly those of the
purchased organization. |
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Corillian Partners May Be Unable to Fulfill Their Service
Obligations and Cause Corillian to Incur Penalties or Other
Expenses with Its Customers |
Corillian resells products and services from other companies,
such as CheckFree, CashEdge, CenterPost and InfoImage. If these
vendors are unable to fulfill their contractual obligations as a
result of insolvency, a disaster or similar event or are unable
to provide the services in a commercially reasonable manner,
Corillian may be required to incur additional expenses to
provide the services to its customers or to pay penalties to its
customers for the suspension or termination of the services.
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Corillian’s Facility and Operations May Be Disabled
by a Disaster or Similar Event, Which Could Damage Its
Reputation and Require Corillian to Incur Financial Loss |
Corillian’s primary communications and network equipment
related to its operations are currently located in Hillsboro,
Oregon. Corillian does not currently have an alternate facility
that can serve as a center of business operations. Corillian
cannot assure that its data center and facility will operate
after a disaster. In addition, Corillian may experience problems
during the period following a disaster in reestablishing its
systems and infrastructure. Although Corillian has a disaster
recovery plan in place, Corillian does not currently have the
technology or facilities to instantly recover full Internet
services if its facility is not functioning. A disaster, such as
a fire, an earthquake, a terrorist attack or a flood, at its
facility could result in failures or interruptions in providing
Corillian’s products and services to its customers. In
addition, Corillian’s systems are vulnerable to operational
failures, losses in power, telecommunications failure and
similar events. Corillian has contracted to provide a certain
level of service to its customers and, consequently, a failure
or interruption of Corillian’s systems in the future could
cause it to refund fees to some of its customers to compensate
for decreased levels of service.
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Competition in the Market for Internet-Based Financial
Services is Intense and Could Reduce Corillian’s Sales and
Prevent Corillian from Achieving Profitability |
The market for Internet-based financial services is intensely
competitive and rapidly changing. Corillian expects competition
to persist and intensify, which could result in price
reductions, reduced gross margins and loss of market share for
its products and services. Corillian competes with a number of
companies in various segments of the Internet-based financial
services industry, and its competitors vary in size and in the
scope and breadth of the products and services they offer.
Corillian’s primary competitors for software platforms
designed to enable financial institutions to offer
Internet-based financial services, both domestically and
internationally, include S1, Digital Insight, Financial Fusion,
Online Resources and Communications and Metavante. Corillian
also competes with companies that offer software platforms
designed for internal development of Internet-based financial
services software, such as IBM’s WebSphere. Within this
segment of Corillian’s industry, many companies are
consolidating, creating larger competitors with greater
resources and a broader range of products.
Corillian also competes with businesses delivering financial
services through Internet portals, banks marketing their own
Internet-based financial services, and non-bank financial
service providers, such as brokerages and insurance companies,
seeking to expand the breadth of their Internet product and
services offerings. In addition, Corillian’s customers may
develop competing products. For example, a customer may choose
to develop its own software platform for Internet-based
financial services. Several of the vendors offering data
processing services to financial institutions, including EDS,
Fiserv, Jack Henry and Metavante, also offer Internet banking
solutions that compete with Corillian’s solutions.
17
Many of Corillian’s competitors and potential competitors
have a number of significant advantages over Corillian,
including:
|
|
|
| |
• |
a longer operating history; |
| |
| |
• |
more extensive name recognition and marketing power; |
| |
| |
• |
preferred vendor status with Corillian’s existing and
potential customers; and |
| |
| |
• |
significantly greater financial, technical, marketing and other
resources, giving them the ability to respond more quickly to
new or changing opportunities, technologies and customer
requirements. |
Corillian’s competitors may also bundle their products in a
manner that may discourage users from purchasing
Corillian’s products. Existing and potential competitors
may establish cooperative relationships with each other or with
third parties, or adopt aggressive pricing policies to gain
market share.
|
|
|
Consolidation in the Financial Services Industry Could
Reduce the Number of Corillian’s Customers and Potential
Customers |
As a result of the mergers and acquisitions occurring in the
banking industry today, some of Corillian’s existing
customers could terminate their contracts with Corillian and
potential customers could break off negotiations with Corillian.
An existing or potential customer may be acquired by or merged
with another financial institution that uses competing
Internet-based financial products and services or does not
desire to continue the relationship with Corillian for some
other reason, which could result in the new entity terminating
the relationship with Corillian.
In addition, an existing or potential customer may be acquired
by or merged with one of Corillian’s existing customers
that licenses Corillian’s products under a contract with
more favorable terms and that can be applied to the acquired
customer’s business operations. This may result in a
reduction in Corillian’s anticipated revenues from the
acquired customer. In 2004, two of Corillian’s largest
customers, J.P. Morgan Chase and Bank One, merged, and one
of Corillian’s customers, Charter One Bank, was acquired by
Citizens Bank.
|
|
|
If Corillian Loses Key Personnel, Corillian Could
Experience Reduced Sales, Delayed Product Development and
Diversion of Management Resources |
Corillian’s success depends largely on the continued
contributions of its key management, technical, sales and
marketing and professional services personnel, many of whom
would be difficult to replace. If one or more of its key
employees were to resign, the loss of personnel could result in
loss of sales, delays in new product development and diversion
of management resources. Corillian does not have employment
agreements with its senior managers or other key personnel.
|
|
|
If Corillian Does Not Develop International Operations as
Expected or Fails to Address International Market Risks,
Corillian May Not Achieve Anticipated Sales Growth |
To increase its revenues, Corillian pursued direct international
sales opportunities and opened an international office. However,
international demand for its products and services did not grow
significantly during 2001 or 2002, so Corillian significantly
reduced its direct investments internationally and is seeking
instead to expand international sales through resellers and
selective direct sales efforts. International expansion of its
business may be more difficult or take longer than Corillian
anticipates, and it may not be able to successfully market,
sell, deliver and support its products internationally.
Corillian will need to form additional relationships with
partners worldwide. These activities require significant
investments of time and capital from Corillian. If Corillian is
unable to develop international sales on a timely basis or at
all, it may not achieve
18
anticipated sales growth, gross margins or operating results. If
Corillian is successful in developing international sales, it
will be subject to a number of risks associated with
international operations, including:
|
|
|
| |
• |
longer accounts receivable collection cycles; |
| |
| |
• |
expenses associated with localizing products for foreign markets; |
| |
| |
• |
difficulties in managing operations and partners across
disparate geographic areas; |
| |
| |
• |
difficulties in hiring qualified local personnel, finding
qualified partners and complying with disparate labor laws; |
| |
| |
• |
foreign currency exchange rate fluctuations; |
| |
| |
• |
difficulties associated with enforcing agreements and collecting
receivables through foreign legal systems; and |
| |
| |
• |
unexpected changes in regulatory requirements that impose
multiple conflicting tax laws and regulations. |
If Corillian fails to address these risks, its results of
operations and financial condition may be adversely affected.
|
|
|
If Corillian Becomes Subject to Intellectual Property
Infringement Claims, These Claims Could Be Costly and Time
Consuming to Defend, Divert Management Attention or Cause
Product Delays |
Corillian has in the past been, and may in the future be, sued
for allegedly infringing or misappropriating a
third-party’s intellectual property rights. Any
intellectual property infringement claims against Corillian,
with or without merit, could be costly and time-consuming to
defend, divert Corillian’s management’s attention, or
cause product delays. Corillian expects that software product
developers and providers of Internet-based financial services
will increasingly be subject to infringement claims as the
number of products and competitors in its industry grows and the
functionality of products overlaps. If Corillian’s products
were found to infringe a third party’s proprietary rights,
Corillian could be required to enter into royalty or licensing
agreements in order to be able to sell its products. Royalty and
licensing agreements, if required, may not be available on terms
acceptable to Corillian or at all.
There has been substantial litigation in the software and
Internet industries regarding intellectual property rights. It
is possible that, in the future, third parties may claim that
Corillian’s current or potential future products infringe
their intellectual property.
|
|
|
Network or Internet Security Problems Could Damage
Corillian’s Reputation and Business |
Corillian has in the past and might in the future experience
security incidents involving actual or attempted access to its
customers’ systems by unknown third parties. As a result of
these types of incidents, Corillian may incur contractual or
other legal liabilities. Security risks may also deter financial
service providers from purchasing Corillian’s products and
deter consumers of financial services from using
Corillian’s products or services. Corillian relies on
standard Internet security systems, all of which are licensed
from third parties, to provide the security and authentication
necessary to effect secure transmission of data over the
Internet. Corillian’s networks may be vulnerable to
unauthorized access, computer viruses and other disruptive
problems. In addition, advances in computer capabilities, new
discoveries in the field of cryptography or other events or
developments may render Corillian’s Internet security
measures inadequate.
Someone who is able to circumvent security measures could
misappropriate proprietary information or cause interruptions in
Corillian’s Internet operations. Corillian may need to
expend significant capital or other resources protecting against
the threat of security breaches or alleviating problems caused
by breaches. Eliminating computer viruses and alleviating other
security problems may result in interruptions, delays or
cessation of service to users accessing Internet sites that
deliver Corillian’s services, any of which could harm
Corillian’s business.
19
|
|
|
New Technologies Could Render Corillian’s Products
Obsolete |
If Corillian is unable to develop products that respond to
changing technology, Corillian’s business could be harmed.
The market for Internet-based financial services is
characterized by rapid technological change, evolving industry
standards, changes in consumer demands and frequent new product
and service introductions.
Advances in Internet technology or in applications software
directed at financial services could lead to new competitive
products that have better performance or lower prices than
Corillian’s products and could render its products obsolete
and unmarketable. Corillian’s Voyager solutions were
designed to run on servers using the Windows NT, Windows
2000 and Windows 2003 operating systems. If a new software
language or operating system becomes standard or is widely
adopted in Corillian’s industry, Corillian may need to
rewrite portions of its products in another computer language or
for another operating system to remain competitive.
|
|
|
Defects in Corillian’s Solutions and System Errors in
Its Customers’ Data Processing Systems After Installing
Corillian’s Solutions Could Result in Loss of Revenues,
Delay in Market Acceptance and Injury to Corillian’s
Reputation |
Complex software products like Corillian’s may contain
undetected errors or defects that may be detected at any point
in the life of the product. Corillian has in the past discovered
software errors in its products. After implementation, errors
may be found from time to time in Corillian’s new products
or services, its enhanced products or services, or products or
services Corillian resells for strategic partners, such as
Yodlee’s data aggregation service. These errors could cause
Corillian to lose revenues or cause a delay in market acceptance
of its solutions or could result in liability for damages,
injury to Corillian’s reputation or increased warranty
costs.
|
|
|
Corillian’s Products and Services Must Interact With
Other Vendors’ Products, Which May Not Function
Properly |
Corillian’s products are often used in transaction
processing systems that include other vendors’ products,
and, as a result, Corillian’s products must integrate
successfully with these existing systems. System errors, whether
caused by Corillian’s products or those of another vendor,
could adversely affect the market acceptance of its products,
and any necessary modifications could cause Corillian to incur
significant expenses.
|
|
|
If Corillian Becomes Subject to Product Liability
Litigation, it Could be Costly and Time Consuming to
Defend |
Since Corillian’s products are used to deliver services
that are integral to its customers’ businesses, errors,
defects or other performance problems could result in financial
or other damages to Corillian’s customers. Product
liability litigation arising from these errors, defects or
problems, even if it were unsuccessful, would be time consuming
and costly to defend. Existing or future laws or unfavorable
judicial decisions could negate any limitation of liability
provisions that are included in Corillian’s license
agreements.
|
|
|
If Corillian is Unable to Protect Its Intellectual
Property, Corillian May Lose a Valuable Competitive Advantage or
be Forced to Incur Costly Litigation to Protect Its
Rights |
Corillian’s future success and ability to compete depends
in part upon its proprietary technology, but its protective
measures may prove inadequate. Corillian relies on a combination
of copyright, trademark, patent and trade secret laws and
contractual provisions to establish and protect its proprietary
rights. None of Corillian’s technology is patented.
Corillian has obtained federal trademark registration for some
of its marks and its logo. Corillian has applied for, but has
not yet obtained, patents on technology it has developed. If
Corillian does not receive approval for these patents, it may be
unable to use this technology without restriction or prevent
others from using this technology.
Despite Corillian’s efforts to protect its intellectual
property, a third party could copy or otherwise obtain
Corillian’s software or other proprietary information
without authorization, or could develop software
20
competitive to Corillian’s. Corillian’s competitors
may independently develop similar technology, duplicate its
products or design around Corillian’s intellectual property
rights. In addition, the laws of some foreign countries do not
protect Corillian’s proprietary rights to as great an
extent as do the laws of the United States, and Corillian
expects the use of its products will become more difficult to
monitor if Corillian increases its international presence.
Corillian may have to litigate to enforce its intellectual
property rights, to protect its trade secrets or know-how or to
determine their scope, validity or enforceability. Enforcing or
defending Corillian’s intellectual property rights is
expensive, could cause the diversion of Corillian’s
resources and may not prove successful. If Corillian is unable
to protect its intellectual property, it may lose a valuable
competitive advantage.
|
|
|
Increasing Government Regulation of the Internet and the
Financial Services Industry Could Limit the Market for
Corillian’s Products and Services, Impose on Corillian
Liability for Transmission of Protected Data and Increase Its
Expenses |
Numerous federal agencies have recently adopted rules and
regulations protecting consumer privacy and establishing
guidelines for financial institutions to follow in selecting
technology vendors for solutions such as Corillian’s
solutions. Corillian believes its business does not currently
subject it to any of these rules or regulations that would
adversely affect Corillian’s business. However, these rules
and regulations are new and may be interpreted to apply to
Corillian’s business in a manner that could make its
business more onerous or costly.
As the Internet continues to evolve, Corillian expects federal,
state and foreign governments to adopt more laws and regulations
covering issues such as user privacy, taxation of goods and
services provided over the Internet, pricing, content and
quality of products and services. If enacted, these laws and
regulations could limit the market for Internet-based financial
services.
If enacted or deemed applicable to Corillian, some laws, rules
or regulations applicable to financial service activities could
render Corillian’s business or operations more costly and
less viable. The financial services industry is subject to
extensive and complex federal and state regulation, and
financial institutions operate under high levels of governmental
supervision. Corillian’s customers must ensure its services
and related products work within the extensive and evolving
regulatory requirements applicable to them. Corillian may become
subject to direct regulation as the market for our business
evolves. Federal, state or foreign authorities could adopt laws,
rules or regulations affecting Corillian’s business
operations, such as requiring Corillian to comply with data,
record keeping and other processing requirements. Any of these
laws, rules or regulations, or new laws, rules and regulations
affecting Corillian’s customers’ businesses, could
lead to increased operating costs and could also reduce the
convenience and functionality of Corillian’s services,
possibly resulting in reduced market acceptance.
A number of proposals at the federal, state and local level and
by the governments of significant foreign countries would, if
enacted, expand the scope of regulation of Internet-based
financial services and could impose taxes on the sale of goods
and services and other Internet activities. Any development that
substantially impairs the growth of the Internet or its
acceptance as a medium for transaction processing could have a
material adverse effect on Corillian’s business, financial
condition and operating results.
|
|
|
Newly Issued and Proposed Accounting Standards Could
Increase the Company’s Stock-Based Compensation Expenses
and Could Adversely Affect the Company’s Ability to Award
Employees with Equity Instruments |
In December 2004, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 123 (revised 2004), Share-Based Payment
(Statement No. 123(R)) as a revision of Statement
No. 123, Accounting for Stock-Based Compensation.
Statement No. 123(R) supersedes Accounting Principles
Board Opinion (APBO) No. 25, Accounting for Stock issued
to Employees, and amends Statement No. 95, Statement
of Cash Flows. Statement No. 123(R) requires companies
to measure the cost for all employee awards of equity
instruments based on the fair value of the award on the grant
date and the estimated probability of the award actually
vesting. This cost is then recognized over the period during
21
which an employee is required to provide service in exchange for
the award or over the period in which performance based measures
are achieved. Pro forma disclosure of the effects of equity
based awards is not an alternative once the new standard is
adopted. Compliance with Statement No. 123(R) may
significantly increase the Company’s expenses for
stock-based compensation and therefore could limit the
Company’s ability to award employees with equity
instruments. If one or more of its key employees were to resign
as a result of this, the loss of personnel could result in loss
of sales, delays in new product development and diversion of
management resources.
|
|
| Item 1B: |
Unresolved Staff Comments |
None.
Corillian’s corporate headquarters are located in
Hillsboro, Oregon. Corillian originally leased approximately
122,000 square feet at its World Campus, and the lease for
this space expired in October 2007. In August 2004, Corillian
amended the lease on its World Campus. The amendment reduced the
space leased effective January 1, 2005 to approximately
100,000 square feet. The amendment also extended the lease
through September 2010.
Corillian also leased approximately 21,000 square feet in
another office building in Beaverton, Oregon, of which
approximately 12,000 square feet was subleased. The lease
for this space expired in February 2005. Corillian did not renew
this lease.
On August 18, 2005, Corillian acquired InteliData
Technologies Corporation (InteliData). As part of the
acquisition, Corillian assumed all lease obligations from
InteliData. Corillian assumed a lease of 33,000 square feet
for operations in Reston, Virginia; this lease expires in
December 2006 and Corillian intends to renew this lease upon its
expiration. Corillian subleases 17,000 square feet at the
Reston, Virginia location to a third party. Corillian also
assumed a lease of 8,800 square feet for product
development and operation facilities in Toledo, Ohio; this lease
expires in April 2006 and Corillian intends to renew this lease
upon its expiration. Corillian also assumed a lease of
9,200 square feet for its product development and customer
service in Omaha, Nebraska; this lease expires in March 2006 and
Corillian intends to renew this lease upon its expiration.
On August 8, 2005, Corillian acquired qbt Systems, Inc.
(qbt). As part of the acquisition, Corillian assumed all lease
obligations from qbt. Corillian assumed a sublease of
5,000 square feet from a third party for operations in New
York, New York; this lease expires in September 2007 and
Corillian intends to renew this lease upon its expiration.
Corillian also assumed a lease of 1,000 square feet for
operations in Overland Park, Kansas; this lease expires in July
2006 and Corillian intends to renew this lease upon its
expiration.
Corillian does not own or lease any other properties or
facilities. Corillian believes that the leased properties are
sufficient for its current operations and for the foreseeable
future.
22
|
|
| Item 3. |
Legal Proceedings |
Corillian is not currently involved in any legal proceedings.
|
|
| Item 4. |
Submission of Matters to a Vote of Security Holders |
Not applicable.
PART II
|
|
| Item 5. |
Market for the Registrant’s Common Equity, Related
Shareholder Matters and Issuer Purchases of Equity
Securities |
Corillian’s Common Stock is traded on the NASDAQ National
Market under the ticker symbol CORI. Public trading of the
Common Stock commenced on April 12, 2000. Prior to that,
there was no public market for the Common Stock. The following
table sets forth, for the periods indicated, the high and low
sale price per share of the Common Stock as reported by the
NASDAQ National Market:
| |
|
|
|
|
|
|
|
|
|
| |
|
High | |
|
Low | |
| |
|
| |
|
| |
|
Year ended December 31, 2004
|
|
|
|
|
|
|
|
|
| |
First Quarter
|
|
$ |
8.15 |
|
|
$ |
4.30 |
|
| |
Second Quarter
|
|
$ |
5.70 |
|
|
$ |
3.72 |
|
| |
Third Quarter
|
|
$ |
6.25 |
|
|
$ |
4.04 |
|
| |
Fourth Quarter
|
|
$ |
6.05 |
|
|
$ |
4.38 |
|
|
Year ended December 31, 2005
|
|
|
|
|
|
|
|
|
| |
First Quarter
|
|
$ |
4.95 |
|
|
$ |
2.82 |
|
| |
Second Quarter
|
|
$ |
3.67 |
|
|
$ |
3.01 |
|
| |
Third Quarter
|
|
$ |
3.46 |
|
|
$ |
3.02 |
|
| |
Fourth Quarter
|
|
$ |
3.27 |
|
|
$ |
2.43 |
|
As of February 28, 2006, Corillian’s common stock was
held by 341 shareholders of record. Brokers and other
institutions hold many of such shares on behalf of shareholders.
Corillian has never declared or paid any cash dividends on its
Common Stock. Corillian currently intends to retain its
earnings, if any, for use in its business and does not
anticipate paying any cash dividends in the foreseeable future.
23
|
|
| Item 6. |
Selected Financial Data |
The following selected financial data and other operating
information are derived from Corillian’s audited
consolidated financial statements. The tables shown below
represent portions of Corillian’s consolidated financial
statements and are not complete. This selected financial data
should be read in conjunction with “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” and Corillian’s audited consolidated
financial statements and related notes included elsewhere in
this report. Historical results are not necessarily indicative
of the results of operations in future periods.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except for per share amounts) | |
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
49,220 |
|
|
$ |
50,794 |
|
|
$ |
46,132 |
|
|
$ |
39,141 |
|
|
$ |
53,848 |
|
|
Gross profit
|
|
|
28,924 |
|
|
|
32,345 |
|
|
|
25,631 |
|
|
|
18,719 |
|
|
|
23,491 |
|
|
Income (loss) from operations
|
|
|
1,856 |
|
|
|
11,185 |
(1) |
|
|
6,396 |
|
|
|
(15,910 |
)(2) |
|
|
(48,998 |
)(3) |
|
Net income (loss)
|
|
|
2,653 |
|
|
|
10,480 |
|
|
|
5,126 |
|
|
|
(17,257 |
) |
|
|
(49,301 |
) |
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.06 |
|
|
$ |
0.28 |
|
|
$ |
0.14 |
|
|
$ |
(0.49 |
) |
|
$ |
(1.42 |
) |
| |
Diluted
|
|
$ |
0.06 |
|
|
$ |
0.26 |
|
|
$ |
0.14 |
|
|
$ |
(0.49 |
) |
|
$ |
(1.42 |
) |
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
|
41,039 |
|
|
|
37,727 |
|
|
|
36,431 |
|
|
|
35,477 |
|
|
|
34,645 |
|
| |
Diluted
|
|
|
42,146 |
|
|
|
40,474 |
|
|
|
37,813 |
|
|
|
35,477 |
|
|
|
34,645 |
|
|
|
| (1) |
Corillian recorded an impairment charge of $491 during the year
ended December 31, 2004. See Note 10 to the
consolidated financial statements for further discussion. |
| |
| (2) |
Corillian recorded restructuring and litigation settlement
charges of $682 and $2,580, respectively, during the year ended
December 31, 2002. |
| |
| (3) |
Corillian recorded restructuring and impairment charges of
$18,097 during the year ended December 31, 2001. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except for per share amounts) | |
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
16,722 |
|
|
$ |
29,200 |
|
|
$ |
16,943 |
|
|
$ |
13,221 |
|
|
$ |
15,203 |
|
|
Restricted cash
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,003 |
|
|
|
— |
|
|
Short-term investments
|
|
|
8,800 |
|
|
|
10,150 |
|
|
|
9,901 |
|
|
|
4,410 |
|
|
|
2,500 |
|
|
Working capital
|
|
|
19,611 |
|
|
|
29,417 |
|
|
|
14,417 |
|
|
|
5,924 |
|
|
|
17,759 |
|
|
Total assets
|
|
|
79,339 |
|
|
|
55,269 |
|
|
|
42,818 |
|
|
|
37,479 |
|
|
|
50,243 |
|
|
Debt and capital leases, long-term portion
|
|
|
— |
|
|
|
629 |
|
|
|
1,075 |
|
|
|
1,600 |
|
|
|
3,730 |
|
|
Total shareholders’ equity
|
|
|
54,733 |
|
|
|
32,602 |
|
|
|
19,554 |
|
|
|
13,121 |
|
|
|
28,104 |
|
|
Cash dividends declared
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
24
|
|
| Item 7. |
Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
Forward-Looking Statements
The following discussion contains forward-looking statements
that involve risks and uncertainties. Our actual results could
differ materially from those anticipated in the forward-looking
statements as a result of certain factors, including the risks
described in greater detail in Part 1, Item 1A,
“Risk Factors,” and elsewhere in this
Form 10-K. See
Part I, Item 1, “Business — Special
Note Regarding Forward Looking Statements.”
Corillian does not guarantee future results, levels of
activity, performance or achievements. Corillian does not intend
to update any of the forward-looking statements after the date
of this document to conform them to actual results or to changes
in its expectations.
Overview
Corillian is a leading provider of solutions that enable banks,
credit unions, brokers and other financial service providers to
rapidly deploy Internet-based financial services.
Corillian’s solutions allow consumers to conduct financial
transactions, view personal and market financial information,
pay bills and access other financial services on the Internet.
Corillian provides a set of applications for Internet banking,
online fraud prevention, electronic bill presentment and
payment, targeted marketing, data aggregation, alerts and online
customer relationship management. Corillian’s solutions
integrate into existing database applications and systems and
enable its customers to monitor transactions across all systems
in real time. Corillian’s solutions are also designed to
support multiple lines of business, including small business
banking and credit card management, and to scale to support
millions of users. Current Corillian customers include
J.P. Morgan Chase, Wachovia Bank, The Huntington National
Bank, Capital One and SunTrust Bank.
Substantially all of Corillian’s revenues are derived from
licensing Corillian’s software and performing professional
services for its customers, both through direct sales channels
and indirect sales partners. These professional services include
implementation of software solutions, custom software
engineering, consulting, maintenance, training and hosting. In
most cases, Corillian recognizes revenues for licenses,
implementation, training and custom engineering services using
the
percentage-of-completion
method. Revenues relating to maintenance and hosting services
are recognized ratably over the term of the associated
maintenance or hosting contract. Revenues derived from
consulting services are recognized as the services are performed
and revenues from transactional services are recognized as
transactions are processed. Corillian generally licenses
Corillian applications on an end-user basis, with its initial
license fee based on a fixed number of end users. As a customer
increases its installed base of end users beyond the initial
fixed number of end users, Corillian’s software license
requires the customer to pay Corillian an additional license fee
to cover additional increments of end users. Revenues from
additional seat sales are generally recognized in the period in
which the licenses are sold.
The market for new sales of Internet banking solutions was
largely challenging in 2004 and 2005 due to various factors,
including reluctance on the part of some banks to upgrade their
Internet banking platforms or improve their Internet banking
websites. New sales of Internet banking solutions improved
toward the end of 2005, as Corillian ended the year with a
revenue backlog of $43.0 million, the highest in Corillian
history. Much of the increase in sales to new customers was
attributable to increased sales of Corillian’s new Consumer
Banking Application to smaller financial institutions, as well
as increased sales of subscription and long-term service
contracts. Moving forward, Corillian will continue to focus on
developing additional applications to complement its market
position within Internet banking and selling products and
services to new and existing customers.
On August 8, 2005, Corillian completed its acquisition of
qbt Systems, Inc., a leading provider of integration solutions
to electronic funds transfer networks and core data processors.
qbt’s MultiPoint product is a powerful integration platform
that allows financial institutions to integrate all of their
delivery channel and account processing systems in one seamless
network environment. The acquisition was an investment aimed at
expanding Corillian’s product offering and customer base
and will allow for a more seamless, real-time integration to the
many different systems used in the industry today. These
factors, among others, support the
25
premium paid over the fair market value of individual assets.
The total purchase price including merger related transaction
costs was $5.4 million. The cost of the acquisition was
allocated on the basis of the estimated fair value of assets and
liabilities assumed. The purchase accounting allocations
resulted in $919,000 net liabilities assumed, goodwill of
$5.0 million and intangibles of $1.3 million.
Intangibles are being amortized to cost of revenues and sales
and marketing over their estimated lives of 1 to 4 years.
At the acquisition date, qbt did not have any in-process
research and development as qbt was in between major product
development cycles. Accordingly, Corillian did not recognize any
expense for in-process research and development in its results
of operations for the year ended December 31, 2005.
On August 18, 2005, Corillian completed its acquisition of
InteliData Technologies Corporation, a leading provider of
electronic bill payment and presentment and online banking
solutions to the financial services industry. InteliData’s
products provide financial institutions with the real-time
financial processing infrastructure needed to provide its
customers with payment and presentment services and online
banking via the Internet and other delivery channels.
InteliData’s customers included banks, credit unions,
brokerage firms, financial institution processors and credit
card issuers. The acquisition was an investment aimed at
expanding Corillian’s product offering, customer base and
revenue growth. These factors, among others, support the premium
paid over the fair market value of individual assets. The total
purchase price including merger related transaction costs was
$21.2 million. The cost of the acquisition was allocated on
the basis of the estimated fair value of assets and liabilities
assumed. The purchase accounting allocations resulted in net
liabilities assumed of $3.9 million, goodwill of
$21.9 million and intangibles of $3.2 million.
Intangibles are being amortized to cost of revenues and sales
and marketing over their estimated lives of 3 to 6 years.
At the acquisition date, InteliData did not have any in-process
research and development as InteliData was in between major
product development cycles. Accordingly, Corillian did not
recognize any expense for in-process research and development in
its results of operations for year ended December 31, 2005.
Since incorporation, Corillian has incurred substantial costs to
develop and market its technology and to provide professional
services. As a result, Corillian has an accumulated deficit of
approximately $94.8 million as of December 31, 2005.
Corillian has had three consecutive fiscal years, 2003 through
2005, of profitability. However, Corillian did incur minor
losses in the third and fourth quarters of 2005 and its
operating history makes it difficult to forecast future
operating results. As a result of the rapid evolution of
Corillian’s business and limited operating history,
Corillian believes
period-to-period
comparisons of its results of operations, including its revenues
and cost of revenues and operating expenses as a percentage of
revenues are not necessarily indicative of its future
performance. In addition, the provisions of the Financial
Accounting Standards Board’s Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based
Payment (Statement No. 123(R)), which Corillian will
adopt in the first quarter of 2006 and requires companies to
recognize stock-based compensation expense associated with stock
options based on the fair value method, will have a material
negative impact on Corillian’s Consolidated Statements of
Operations and could result in future operating losses. See
Note 2 to the consolidated financial statements for further
discussion.
On December 22, 2005, Corillian’s Board of Directors
approved the acceleration of vesting of those employee stock
options with an exercise price equal to or greater than $5.00.
The closing price of Corillian’s common stock as quoted on
December 22, 2005 was $2.80 per share. The
acceleration applied to all options outstanding as of
December 30, 2005 under Corillian’s 2000 Stock
Incentive Compensation Plan and 2003 Nonqualified Stock
Incentive Compensation Plan. Options to
purchase 354,218 shares of Corillian’s common
stock, or approximately 0.8% of Corillian’s total
outstanding options, with a weighted average exercise price of
$5.74 and varying remaining vesting schedules, became
immediately vested and exercisable on December 30, 2005. Of
these 354,218 options, 200,000 options are held by one Corillian
executive officer. No options held by Corillian’s directors
were impacted by the acceleration of vesting. Because the
affected options had exercise prices significantly in excess of
the current price per share of Corillian’s common stock,
the options have little or no incentive value. The vesting of
these options was accelerated to avoid the recognition of
expense with respect to these options under Statement
No. 123(R), which Corillian has adopted effective
January 1, 2006. Included in the pro forma stock-based
compensation expense for 2005 in Note 2 is
$1.2 million associated
26
with the acceleration. As a result of this acceleration,
Corillian estimates a reduction in stock-based compensation
expense associated with this acceleration of approximately
$612,000, $532,000 and $91,000 for fiscal years 2006, 2007 and
2008, respectively.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of financial condition
and results of operations is based upon Corillian’s audited
consolidated financial statements. The preparation of
consolidated financial statements in accordance with
U.S. generally accepted accounting principles requires
Corillian to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities.
Corillian bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Estimates related to software revenue recognition, accrual for
contracts in a loss position, valuation of long-lived assets,
including intangible assets, which include goodwill and the
valuation allowance for deferred tax assets require higher
degrees of judgment than others in their application. Actual
results may differ from these estimates under different
assumptions or conditions.
Certain of Corillian’s accounting policies require higher
degrees of judgment than others in their application. These
include revenue recognition, income taxes, stock based
compensation, accruals for contracts in loss positions, goodwill
and intangibles. Corillian’s policy and related procedures
for software revenue recognition are summarized below.
Revenue Recognition. Corillian recognizes revenues from
software licensing agreements in accordance with the provisions
of Statement of Position (SOP) No. 97-2, Software
Revenue Recognition, as amended by SOP No. 98-9,
Modification of SOP No. 97-2, Software Revenue
Recognition, with Respect to Certain Transactions.
Corillian’s software arrangements generally include
software licenses, implementation and custom software
engineering services, post-contractual customer support,
training services and may also include hosting services.
Corillian’s software licenses are, in general, functionally
dependent on implementation, training and certain custom
software engineering services; therefore, software licenses and
implementation and training services, together with custom
software engineering services that are essential to the
functionality of the software, are combined and recognized using
the
percentage-of-completion
method of contract accounting in accordance with SOP
No. 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts.
Corillian has determined that post-contractual customer support
and hosting services can be separated from software licenses,
implementation, training and custom software engineering
services because (a) post-contractual customer support and
hosting services are not essential to the functionality of any
other element in the arrangement, and (b) sufficient
vendor-specific objective evidence exists to permit the
allocation of revenue to these service elements. The hosting
element can be accounted for separately from the license
element, as the customer can take possession of the software
without significant penalty, in accordance with Emerging Issues
Task Force (EITF) 00-3, Application of AICPA Statement
of Position 97-2 to Arrangements that Include the Right to Use
Software Stored on Another Entity’s Hardware.
The
percentage-of-completion
is measured by the percentage of contract hours incurred to date
compared to the estimated total contract hours for each
contract. Corillian has the ability to make reasonably
dependable estimates relating to the extent of progress towards
completion, contract revenues and contract costs. Any estimation
process, including that used in preparing contract accounting
models, involves inherent risk. Profit estimates are subject to
revision as the contract progresses towards completion.
Revisions in profit estimates are charged to income in the
period that the facts giving rise to the revision become known.
Corillian reduces the inherent risk relating to revenue and cost
estimates in
percentage-of-completion
models through various approval and monitoring processes and
policies. Risks relating to service delivery, usage,
productivity and other factors are considered in the estimation
process. Cumulative revenues recognized may be less or greater
than cumulative billings at any point in time during a
contract’s term. The resulting difference is recognized as
deferred revenue or revenue in excess of billings, respectively.
Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined.
27
Vendor-specific objective evidence has been established on
post-contractual customer support and hosting services using the
renewal rate. Corillian allocates revenue to certain elements in
multiple element arrangements using the residual method. The
difference between the total software arrangement fee and the
amount deferred for post-contractual customer support and
hosting services is allocated to software license,
implementation, training and custom software engineering
services and recognized using contract accounting.
Revenues for post-contractual customer support are recognized
ratably over the term of the support services period, generally
a period of one year. Services provided to customers under
customer support and maintenance agreements generally include
technical support and unspecified product upgrades deliverable
on a when and if available basis. Revenues from hosting services
for transactions processed by Corillian are recognized ratably
over the hosting term.
Pursuant to SOP No. 81-1, on projects where reasonable
estimates cannot be made due to inherent hazards, but where
there is an assurance no loss will be incurred, Corillian limits
revenue recognition in the period to the amount of project costs
incurred in the same period, and postpones recognition of
profits until results can be estimated more precisely. Under
this “zero profit” methodology, equal amounts of
revenues and costs, measured on the basis of performance during
the period, are presented in Corillian’s consolidated
statements of operations.
Corillian generally licenses Corillian Voyager on an end-user
basis, with its initial license fee based on a fixed number of
end users. As a customer increases its installed base of end
users beyond the initial fixed number of end users,
Corillian’s software license agreements require customers
to pay Corillian an additional license fee to cover additional
increments of end users. Revenues from additional license seat
sales, less any amounts related to maintenance included in the
arrangement, are generally recognized in the period in which the
licenses are sold.
In arrangements where Corillian does not have an obligation to
install its products, but may become involved in the
installation of these products, Corillian recognizes
non-refundable license fees over the estimated implementation
period for the customer or reseller’s project. If Corillian
determines that the customer or reseller can successfully
install Corillian’s products in a production environment
without Corillian’s involvement, Corillian will recognize
non-refundable license fees in the period in which delivery
occurs, assuming all other SOP No. 97-2 revenue recognition
criteria are met.
In certain arrangements, Corillian may defer all revenues and
related costs of revenues until delivery is complete and
customer acceptance is obtained. These arrangements have certain
elements of risk such as an obligation to deliver new products
when technological feasibility has not been obtained at the
onset of the arrangement or an obligation to deliver software
customized to a customer specifications. In arrangements where
Corillian is providing customized functionality on a best
efforts basis, Corillian generally recognizes revenues as
services are performed. Revenue from transactional services are
recognized as transactions are processed.
Where Corillian’s customers enter into arrangements to
purchase Corillian’s software and services on a
subscription basis, Corillian recognizes revenue in accordance
with Staff Accounting Bulletin (SAB) No. 104, Revenue
Recognition in Financial Statements. Under these
arrangements, Corillian defers recognition of the implementation
and license revenue and recognizes them ratably over the greater
of the initial life of the customer contract or the estimated
life of the customer service relationship. Costs associated with
implementation are deferred and recognized ratably over the life
of the arrangements.
Income Taxes. Corillian has established a valuation
allowance for certain deferred tax assets, including those for
net operating loss and tax credit carryforwards. Such a
valuation allowance is recorded when it is more likely than not
that the deferred tax assets will not be realized. This
determination was based on an evaluation of positive and
negative factors, including Corillian’s history of having
net losses, losses in the third and fourth quarter of 2005,
future projections and limitations on the use of net operating
loss carryforwards. The valuation allowance at December 31,
2005 and 2004 were $34.0 million and $27.8 million,
respectively. Corillian will continue to evaluate the need for a
valuation allowance in future reporting periods.
28
Stock-Based Compensation. Through fiscal year 2005,
Corillian applied the intrinsic-value-based method of accounting
prescribed by Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees,
and related interpretations including FASB Interpretation
(FIN) No. 44, Accounting for Certain Transactions
involving Stock Compensation, an interpretation of APB
Opinion No. 25, to account for its fixed-plan stock
options. Under this method, compensation expense is generally
recorded on the date of grant if the current market price of the
underlying stock exceeded the exercise price. Statement of
Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation and Statement No. 148,
Accounting for Stock-Based Compensation —
Transition and Disclosure, an amendment of FASB Statement
No. 123, established accounting and disclosure requirements
using a fair-value-based method of accounting for stock-based
employee compensation plans. As permitted by existing accounting
standards, Corillian elected to continue to apply the
intrinsic-value-based method of accounting described above, and
adopted only the disclosure requirements of Statement
No. 123, as amended. Expense associated with stock-based
compensation is amortized on an accelerated basis over the
vesting period of the individual stock option awards consistent
with the method prescribed in FIN No. 28.
Goodwill and Intangible Assets. Goodwill and intangible
assets are accounted for in accordance with Statement
No. 141, Business Combinations, and Statement
No. 142, Goodwill and Other Intangible Assets.
Corillian performed its annual goodwill impairment analysis
during the fourth quarter of fiscal year 2005 and identified no
impairment. To determine whether or not goodwill is impaired, a
test is performed comparing the book value of the
“reporting unit” to its trading price. Statement
No. 142 requires purchased intangible assets, other than
goodwill, to be amortized over their estimated useful lives,
unless an asset has an indefinite life. Purchased intangible
assets with definite useful lives are carried at cost less
accumulated amortization. Amortization expense is recognized
over the estimated useful lives, which range from one to six
years. Corillian estimates amortization of intangibles to be
$1.6 million in 2006.
Recent Accounting Pronouncements. On December 16,
2004, the Financial Accounting Standards Board (FASB) issued
Statement No. 123(R), Share-Based Payment, which
replaces Statement No. 123, supersedes APB No. 25,
Accounting for Stock Issued to Employees, and amends
Statement No. 95, Statement of Cash Flow. Currently,
Corillian uses the Black-Scholes model for option expense
calculation and presents pro forma disclosure of the statements
of operations effect in financial statement footnotes only under
APB No. 25. However, under Statement No. 123(R), pro
forma disclosure of the statements of operations effects of
share-based payments will no longer be an alternative and all
share-based payments to employees, including grants of employee
stock options, will be recognized in the financial statements
based on their fair values. In addition, companies must also
recognize compensation expense related to any awards that are
not fully vested as of the effective date. Compensation expense
for the unvested awards will be measured based on the fair value
of the awards previously calculated in developing the pro forma
disclosures in accordance with the provisions of Statement
No. 123. Statement No. 123(R) is effective for public
companies with annual periods that begin after June 15,
2005. Corillian believes that the adoption of Statement
No. 123(R) will have a material impact on its results of
operations; however, Corillian is not able to determine the full
effect of the adoption as it is dependant upon future grant
activity, Corillian’s stock price, and other variables.
In March 2005, the Securities and Exchange Commission released
Staff Accounting Bulletin (SAB) No. 107, to provide
guidance on Statement No. 123(R). SAB No. 107
provides the Staff’s view regarding the valuation of
share-based payment arrangements for public companies. In
particular, this SAB provides guidance related to share-based
payment transactions with non-employees, the transition from
non-public to public entity status, valuation methods (including
assumptions such as expected volatility and expected term), the
accounting for certain redeemable financial instruments issued
under share-based payment arrangements, the classification of
compensation expense, non-GAAP financial measures, first time
adoption of Statement No. 123(R), the modification of
employee share options prior to the adoption of Statement
No. 123(R) and disclosure in Management’s Discussion
and Analysis subsequent to adoption of Statement
No. 123(R). SAB No. 107 was effective
March 29, 2005. The adoption of SAB No. 107 is
expected to have a material impact on the Company’s
financial statements for the first quarter of 2006. Corillian
currently estimates that Statement No. 123(R) and
SAB No. 107 will reduce diluted net income per share
by approximately $0.06 to $0.10 per share for fiscal 2006.
In addition, Corillian’s existing line of credit requires
Corillian to maintain
29
certain levels of net income. The impact of FASB Statement
No. 123(R) may result in future covenant violations under
the line of credit if Corillian is unable to amend the covenant
requirements of its existing line of credit or renegotiate new
terms upon its renewal.
Results of Operations
The following table sets forth for the periods indicated the
percentage of revenues represented by certain lines in
Corillian’s audited consolidated statements of operations.
| |
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|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
Revenues
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
Cost of revenues
|
|
|
41.2 |
|
|
|
36.3 |
|
|
|
44.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
58.8 |
|
|
|
63.7 |
|
|
|
55.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Sales and marketing
|
|
|
15.9 |
|
|
|
14.3 |
|
|
|
13.9 |
|
| |
Research and development
|
|
|
21.9 |
|
|
|
13.2 |
|
|
|
12.9 |
|
| |
General and administrative
|
|
|
17.1 |
|
|
|
13.2 |
|
|
|
14.8 |
|
| |
Amortization of deferred stock-based compensation
|
|
|
— |
|
|
|
— |
|
|
|
0.1 |
|
|
Impairment charges
|
|
|
— |
|
|
|
1.0 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
55.0 |
|
|
|
41.7 |
|
|
|
41.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
3.8 |
|
|
|
22.0 |
|
|
|
13.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
Other income (expenses), net
|
|
|
1.7 |
|
|
|
(1.1 |
) |
|
|
(2.5 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net income before income taxes
|
|
|
5.5 |
% |
|
|
20.9 |
% |
|
|
11.4 |
% |
|
Income taxes
|
|
|
0.1 |
|
|
|
0.3 |
|
|
|
0.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
5.4 |
% |
|
|
20.6 |
% |
|
|
11.1 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of Years Ended December 31, 2005, 2004,
and 2003 |
Revenues
|
|
|
Years Ended December 31, 2005 and 2004 |
Revenues decreased to $49.2 million in 2005 from
$50.8 million in 2004. This decrease in revenues of
$1.6 million, or 3%, was primarily due to a
$9.9 million decrease in license revenue due to fewer large
license sales in 2005, which was partially offset by a
$6.9 million increase in professional services in 2005, as
compared to 2004, and a $1.7 million increase in
maintenance revenue in 2005, as compared to 2004. Professional
services increased due to an increase in implementation projects
in 2005, as compared to 2004, and the increase in maintenance
revenue is due to Corillian’s customer base continuing to
increase.
Corillian’s international revenues contributed
approximately $1.8 million, or 4%, to Corillian’s
consolidated revenues in 2005, compared to $1.1, or 2%, million
in 2004. Corillian does not expect its international revenues to
be significant in fiscal year 2006. Corillian continues to
pursue ways in which to increase international revenues through
resellers. Until Corillian’s resellers are successful at
distributing and implementing Corillian’s products
internationally, Corillian does not anticipate that
international revenues will comprise a significant percentage of
its consolidated revenues.
During 2005, one customer individually accounted for 10% of
consolidated revenues. During 2004, two customers individually
accounted for more than 10% of consolidated revenues, and, in
total, these two customers accounted for approximately 29% of
consolidated revenues.
30
|
|
|
Years Ended December 31, 2004 and 2003 |
Revenues increased to $50.8 million in 2004 from
$46.1 million in 2003. This increase in revenues of
$4.7 million, or 10%, was primarily due to an increase in
maintenance revenues of approximately $2.6 million, as
Corillian’s customer base increased from 2003 to 2004. The
increase in revenues was also due to an increase in hosting
revenues of $1.5 million in 2004, as compared to 2003,
primarily related to one significant hosted customer’s
service starting in 2004.
Corillian’s international revenues contributed
approximately $1.1 million, or 2%, to Corillian’s
consolidated revenues in 2004 and 2003, respectively.
Due to certain triggering events included in a customer’s
contract, beginning with the three-month period ended
September 30, 2002, Corillian applied the “zero
profit” methodology discussed above to three existing
projects for one customer. Both revenue and expense recognized
from these projects accounted for under the “zero
profit” methodology during 2003 was approximately $714,000.
As all three of this customer’s projects were completed and
accepted during 2003, Corillian recognized an additional
$1.0 million of revenues related to these projects, which
had been previously deferred until completion of the projects,
during 2003. Since all cost of revenues associated with these
projects had been previously recognized using the “zero
profit” methodology, recognition of this deferred revenue
resulted in the corresponding recognition of $1.0 million
in gross profit during 2003. No further revenues were deferred
on these projects as of December 31, 2003.
As of December 31, 2005, Corillian had a backlog of
unfilled orders of $43.0 million, as compared to a backlog
of $32.4 million as of December 31, 2004. Backlog
increased during 2005, as bookings were greater than revenues
recognized during this period.
Backlog represents contractual customer commitments, including
fees for licenses, professional services, maintenance, hosting
and subscriptions. Backlog is not necessarily indicative of
revenues to be recognized in any given future period. There are
many factors that could impact Corillian’s filling of
backlog, such as Corillian’s progress in completing
projects for its customers and Corillian’s customers’
meeting anticipated schedules for customer-dependent
deliverables. Corillian provides no assurances that any portion
of its backlog will be filled during any fiscal year or at all
or that its backlog will be recognized as revenues in any given
period.
Cost of Revenues
Cost of revenues consists primarily of salaries and related
expenses for professional service personnel and outsourced
professional service providers who are responsible for the
implementation and customization of Corillian’s software
and for maintenance and support personnel who are responsible
for post-contractual customer support.
Cost of revenues increased to $20.3 million in 2005 from
$18.4 million in 2004. Gross profit decreased as a
percentage of revenues to 58.8% in 2005 from 63.7% in 2004. The
decrease in gross profit as a percentage of revenue was
primarily due to less high-margin license revenue in 2005, as
compared to 2004. Gross profit as a percentage of revenue also
decreased due to $579,000 of amortization of intangibles being
recorded to cost of revenues in 2005 as a result of the
acquisitions of InteliData and qbt in August 2005.
Cost of revenues decreased to $18.4 million in 2004 from
$20.5 million in 2003. Gross profit increased as a
percentage of revenues to 63.7% in 2004 from 55.6% in 2003. The
increase in gross profit as a percentage of revenues during
2004, as compared to 2003, was mainly due to a higher percentage
of higher-margin license, maintenance and hosting revenues.
License, maintenance and hosting revenues, in dollars and as a
percentage of revenues, increased during 2004, while
professional service revenues, in dollars and as a percentage of
revenues decreased. There are relatively few costs attributed to
license revenues, and there were insignificant incremental costs
attributed to the increased maintenance and hosting revenues.
The decrease in cost of revenue was partially offset by
$1.3 million of expenses, related to research and
development personnel providing services for one of
Corillian’s customers being classified as cost of revenues
during 2004.
31
Operating Expenses
Sales and Marketing Expenses. Sales and marketing
expenses consist of salaries, commissions, and related expenses
for personnel involved in marketing, sales and support
functions, as well as costs associated with trade shows and
other promotional activities.
Sales and marketing expense increased to $7.9 million in
2005 from $7.3 million in 2004. This increase of $600,000,
or 8%, was primarily due to $0.8 million of sales and
marketing costs associated with the newly acquired companies
from the acquisition dates through December 31, 2005. These
costs were primarily due to sales and marketing headcount
increasing by 11 as a result of the acquisitions.
Corillian anticipates higher sales and marketing expenses during
2006, compared to 2005, due to continued investments in
additional product lines and increased commissions. Corillian
expects to maintain end of 2005 staffing levels for its sales
and marketing department during 2006.
Sales and marketing expense increased to $7.3 million in
2004 from $6.4 million in 2003. This increase of $900,000,
or 14%, was primarily due to the number of personnel in
marketing increasing to 10 at the end of 2004 from 7 at the end
of 2003, which resulted in an increase of approximately $520,000
of payroll and payroll related expenses in 2004, compared to
2003. Sales and marketing expenses also increased due to
consulting expenses increasing approximately $250,000 during
2004.
Research and Development Expenses. Research and
development expenses consist primarily of salaries and related
expenses for engineering personnel and costs of materials and
equipment associated with the design, development and testing of
Corillian’s products.
Research and development expenses increased to
$10.8 million in 2005 from $6.7 million in 2004. This
increase of $4.1 million, or 61%, was primarily due to
increased headcount to 85 at December 31, 2005 from 59 at
December 31, 2004, which resulted in an increase of
approximately $3.8 million of payroll and payroll related
expenses in 2005. The increase in headcount was due to a
combination of Corillian increasing its investment in developing
new and existing products as well as headcount additions due to
business combinations. As of December 31, 2005, 12 of the
85 employees in research and development had been added to
headcount as a result of business combinations.
Corillian anticipates research and development expenses to
increase during 2006, compared to 2005, due to continued
investments in product development for existing and new
products. Corillian expects to maintain end of 2005 staffing
levels for its research and development department during 2006.
Research and development expenses increased to $6.7 million
in 2004 from $6.0 million in 2003. This increase of
$700,000, or 12%, was primarily due to the number of personnel
in research and development increasing from 46 at the end of
2003 to 59 at the end of 2004. This increase was partially
offset by $1.3 million in research and development
expenses, related to personnel providing services for one of
Corillian’s customers, being classified as cost of revenues
in 2004.
Research and development expenses, to a certain extent, could
fluctuate in future periods due to the additional funding of
Corillian’s research and development activities by
customers accounted for under the provisions of the Financial
Accounting Standards Board’s (FASB) Statement of
Financial Accounting Standards No. 68, Research and
Development Arrangements (Statement No. 68), as well as
internal funding for the development of new products and
enhancements to existing products and the use of
Corillian’s research and development personnel to provide
services for Corillian’s customers.
General and Administrative Expenses. General and
administrative expenses consist of salaries and related expenses
for executive, finance, human resources, legal, information
systems management and administration personnel, as well as
professional fees, bad debt expense and other general corporate
expenses.
General and administrative expenses increased to
$8.4 million in 2005 from $6.7 million in 2004. The
increase of $1.7 million, or 25%, was due to a
$0.7 million increase in general and administrative
expenses as a result of the InteliData and qbt acquisitions, as
well as a $0.9 million increase of payroll and payroll
related expenses due to headcount increasing to 40 at
December 31, 2005, as compared to 36 at December 31,
2004.
32
Corillian expects general and administrative expenses to
increase in 2006 due to increased headcount.
General and administrative expenses decreased to
$6.7 million in 2004 from $6.8 million in 2003. The
decrease of $100,000, or 1%, was due to a decrease in severance
payments paid to departing officers in 2003. This decrease was
partially offset by increased consulting fees related to
Sarbanes-Oxley compliance costs and salaries as headcount in
general and administrative increased from 30 at the end of 2003
to 36 at the end of 2004.
On November 14, 2003, Steve Sipowicz stepped down as
Corillian’s Chief Financial Officer and Secretary.
Mr. Sipowicz served as Corillian’s financial advisor
for a six-month period following his departure.
Mr. Sipowicz received $100,000 as severance and
$2,000 per month during the period he served as financial
advisor. Corillian recorded a charge of $100,000 related to Mr.
Sipowicz’s severance agreement as general and
administrative expense during the third quarter of 2003.
Amortization of Deferred Stock-based Compensation.
Deferred stock-based compensation represents the difference
between the exercise price of stock options granted to employees
and the fair value of Corillian’s common stock at the time
of the grants. In addition, this amount includes the fair value
of stock options granted to non-employees. This amount was being
amortized over the respective vesting periods of these options
on an accelerated basis. For 2005, 2004 and 2003, amortization
of deferred stock-based compensation was $0, $0, and $35,000,
respectively. All deferred stock-based compensation was
amortized as of March 31, 2003.
Impairment Charges. In the third quarter of 2004,
Corillian amended the lease on its corporate headquarters,
reducing the space leased from approximately 122,000 square
feet to 100,000 square feet effective January 1, 2005.
Corillian recorded an impairment charge of $491,000 to write-off
the remaining book value of long-lived assets in the space
Corillian abandoned and ceased to use during the third quarter
of 2004.
Other Income (Expense), Net
Other income (expense), net, consists primarily of interest
earned on cash and cash equivalents and short-term investments,
interest expense, Corillian’s share of losses in equity
investments, and other miscellaneous items. Other income
(expense), net, increased to income of $858,000 in 2005 from an
expense of $545,000 in 2004. This increase was primarily due to
decreases in investment losses and interest expense.
Corillian’s proportionate share of the net loss in Synoran,
a limited liability company in which Corillian holds a minority
investment interest, decreased by $685,000 in 2005, as compared
to 2004, and Corillian’s interest expense decreased by
$115,000 in 2005 due to Corillian paying off its line of credit
in February 2005. Additionally, interest income increased
approximately $591,000 in 2005, as compared to 2004, due to
increasing interest rates on short-term investments.
Other income (expense), net, decreased to an expense of $545,000
in 2004 from an expense of $1.1 million in 2003. This
decrease was mainly due to a $320,000 decrease in
Corillian’s proportionate share of Synoran’s net loss
during 2004, as compared to 2003, as well as an increase in
interest income of approximately $188,000 and a decrease in
interest expense of approximately $104,000 during 2004, as
compared to 2003.
During 2006, Corillian anticipates other income will increase
due to increasing interest rates with short-term investments.
Additionally, Corillian’s investment balance in Synoran is
$0 and therefore, no further losses will be incurred.
Income Taxes
Corillian was profitable during 2005, 2004 and 2003. Although
net operating loss carryforwards were used to offset taxable
income for regular tax purposes, Corillian was subject to
alternative minimum tax because only 90 percent of taxable
income may be offset by net operating loss carryforwards for
alternative minimum tax purposes. As a result, Corillian
recorded an income tax charge of $61,000, $160,000 and $124,000
during 2005, 2004 and 2003, respectively.
33
As of December 31, 2005, Corillian had federal and state
net operating loss carryforwards of approximately
$68.8 million and foreign net operating loss carryforwards
of approximately $12.3 million to offset against future
taxable income. Additionally, Corillian had alternative minimum
tax credits of $254,000 and research and experimentation credits
of $3.9 million. These carryforwards expire between 2006
and 2025. Corillian had net deferred tax assets, including
Corillian’s net operating loss carryforwards and tax
credits, of $34.0 million as of December 31, 2005. A
full valuation allowance has been recorded against the net
deferred tax asset balance due to uncertainties regarding the
realizability of the asset balance.
Liquidity and Capital Resources
As of December 31, 2005, Corillian had $25.5 million
in cash, cash equivalents and short-term investments, as
compared to $39.4 million as of December 31, 2004.
Corillian acquired qbt Systems, Inc. on August 8, 2005 and
InteliData Technologies on August 18, 2005. These
acquisitions resulted in merger related transaction costs and
cash paid to shareholders of $3.3 million and
$4.5 million for qbt Systems Inc. and InteliData
Technologies, respectively. Additionally, net liabilities
assumed for qbt Systems Inc. and InteliData Technologies,
excluding goodwill and intangibles, were $919,000 and
$3.9 million, respectively. The combination of cash paid to
shareholders and net liabilities assumed for the respective
companies contributed to the decrease in cash, cash equivalents
and short-term investments at December 31, 2005, as
compared to December 31, 2004.
Cash used in operating activities was $4.9 million for
fiscal year 2005. In 2005, cash flow from operations decreased
by $4.5 million due to payments of accounts payable and
accrued liabilities, which decreased cash flow from operations
primarily due to payment of liabilities assumed in business
combinations. The timing of cash receipts from accounts
receivable resulted in a decrease of cash flow from operations
by $2.4 million and changes in deferred revenue decreased
cash flow from operations by $1.7 million due to the timing
of billings and revenue recognized. These amounts were offset by
$4.9 million of net income adjusted for certain non-cash
items. Cash used in investing activities was $7.4 million
for 2005, which was primarily due to $7.7 million of cash
paid for acquisitions. Additionally, cash used to purchase
property and equipment decreased cash and cash equivalents by
$1.1 million and the net proceeds from the sales of
available-for-sale investments increased cash and cash
equivalents by $1.4 million. Cash used in financing
activities was $141,000 for 2005. This was due to $309,000 of
cash used for registration costs associated with business
combinations and $911,000 of cash paid on line of credit
borrowings, offset by $1.1 million of proceeds from the
issuance of common stock related to employee stock option
exercises and employee stock purchases.
Cash provided by operating activities was $12.4 million for
fiscal year 2004, which was primarily due to $13.9 million
of net income adjusted for certain non-cash items and changes in
assets and liabilities. Various other items affected
Corillian’s cash provided by operating activities in 2004,
offsetting this increase. In 2004, Corillian’s deferred
revenue balance increased by $1.1 million, primarily due to
the timing of billings on large license sales in relation to the
periods revenue was recognized. Accounts receivable increased
$1.9 million in 2004, as compared to 2003, due to the
timing of billings sent and payments received. Cash flows used
in investing activities was $968,000 in 2004, primarily due to
the purchase of property plant and equipment. Cash flows from
financing activities was $795,000 in 2004, primarily due to
$2.5 million of proceeds from the issuance of common stock
related to employee stock option exercises and employee stock
purchases, offset by $1.7 million of cash paid on line of
credit borrowings.
Cash provided by operating activities was $11.3 million for
fiscal year 2003, which was primarily due to $9.8 million
of net income adjusted for certain non-cash items and changes in
assets and liabilities. Various other items affected
Corillian’s cash provided by operating activities. In 2003,
Corillian’s accounts receivable balance increased by
$1.9 million due to the timing of billings and receipt of
payments on large license sales. Corillian’s deferred
revenue balance increased by $1.6 million in 2003 due to
the timing of billings on large license sales in relation to the
periods the revenue was recognized. During 2003, Corillian also
satisfied the contractual requirements that allowed for the
release of $1.6 million of escrow funds that Corillian had
previously recorded in other receivables and released
restrictions on another $1.0 million of cash that Corillian
had previously recorded as restricted cash. Cash flows from
investing activities was $7.6 million in 2003, which
consisted of net purchases in short-term investments of
$5.5 million, $1.1 million of property and equipment
34
purchases and a $1.0 million cash investment in Synoran.
Cash flows provided by financing activities increased $32,000,
which consisted of $1.3 million in proceeds received from
the issuance of common stock pursuant to Corillian’s
employee stock plans and $860,000 in net payments on line of
credit borrowings.
Working capital decreased to $19.6 million as of
December 31, 2005, as compared to $29.4 million as of
December 31, 2004. This decrease was primarily due to cash
used in business combinations and operating activities.
In November 2000, Corillian obtained a $5.0 million
equipment line of credit with a financial institution. As of
December 31, 2004, approximately $911,000 was outstanding
under this line of credit. In February 2005, Corillian paid off
the remaining balance outstanding under this line of credit.
In March 2005, Corillian entered into a new one-year revolving
line of credit facility with another financial institution that
allows Corillian to borrow up to $4.0 million to assist
with working capital needs as necessary. Under this line of
credit, Corillian must comply with affirmative covenants that
require it to maintain a specified tangible net worth value,
quick ratio, liabilities to tangible net worth ratio and certain
levels of net income. As of December 31, 2005, Corillian
had not borrowed from this line of credit.
As of December 31, 2005, Corillian was in violation of the
net income requirements under its line of credit agreement.
Corillian obtained a waiver from its lender, dated
February 8, 2006, that waived the default rights with
respect to the breach for the period ending December 31,
2005. If Corillian is unable to amend the covenant requirements
of its existing line of credit or renegotiate new terms upon its
renewal, the impact of FASB Statement No. 123(R), which
will result in increased stock option expenses, may result in
future covenant violations.
In May 2000, Corillian entered into a lease for its new
corporate headquarters, which is located in Hillsboro, Oregon
and consisted of approximately 122,000 square feet. The
lease had a term of seven years. In August 2004, Corillian
amended the lease, to reduce the space leased effective as of
January 1, 2005 to approximately 100,000 square feet.
The amendment also extended the lease expiration date to
September 2010. Under the terms of the amended lease, monthly
rent ranges from approximately $186,000 to approximately
$199,000. Corillian records rent expense on a straight-line
basis over the lease term in accordance with FASB Statement
No. 13, Accounting for Leases. Pursuant to Statement
No. 146, Accounting for Costs Associated with Exit or
Disposal Activities, and Statement No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, Corillian recognized an impairment charge of
$491,000 in September 2004 to write off the remaining book value
of long-lived assets in the space Corillian has abandoned and
ceased to use.
Corillian also leased approximately 21,000 square feet in
another office building in Beaverton, Oregon, of which
approximately 12,000 square feet were subleased. The lease
for this space expired in February 2005. Under the terms of this
lease, Corillian’s monthly rent was approximately $29,000
and Corillian received approximately $6,000 per month from
subleasing a portion of this office building. Corillian did not
renew this lease.
As part of the acquisition of InteliData on August 18,
2005, Corillian assumed all contractual lease obligations from
InteliData. Corillian assumed leases in Reston, Virginia that
expires in December 2006, Toledo, Ohio that expires in April
2006 and Omaha, Nebraska that expires in March 2006. Corillian
intends to renew these leases upon their expiration.
As part of the acquisition of qbt on August 8, 2005,
Corillian assumed a lease and sublease from qbt. Corillian
assumed a sublease in New York, New York that expires in
September 2007 and a lease in Overland Park, Kansas that expires
in July 2006. Corillian intends to renew these leases upon their
expiration.
Corillian had no material financial obligations as of
December 31, 2005, other than obligations under its
operating leases and minimum vendor commitments. Future capital
requirements will depend on many factors, including the timing
of research and development efforts and the expansion of
Corillian’s operations,
35
both domestically and internationally. Corillian believes its
current cash, cash equivalents and short-term investments will
be sufficient to meet its working capital requirements for at
least the next 12 months.
Contractual Obligations. Corillian is contractually
obligated to make the following payments as of December 31,
2005 (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Less than | |
|
1-3 | |
|
3-5 | |
| |
|
Total | |
|
1 Year | |
|
Years | |
|
Years | |
| |
|
| |
|
| |
|
| |
|
| |
|
Capital lease obligations
|
|
$ |
4 |
|
|
$ |
4 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Operating lease commitment
|
|
|
12,058 |
|
|
|
3,297 |
|
|
|
4,699 |
|
|
|
4,062 |
|
|
Purchase obligations
|
|
|
1,593 |
|
|
|
626 |
|
|
|
947 |
|
|
|
20 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$ |
13,655 |
|
|
$ |
3,927 |
|
|
$ |
5,646 |
|
|
$ |
4,082 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The future minimum lease obligations do not include $452,000 of
expected receipts from subleases in 2006.
Off-Balance Sheet Arrangements
Corillian has no off-balance sheet arrangements that have or are
reasonably likely to have a current or future material effect on
its financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
|
|
| Item 7A. |
Quantitative and Qualitative Disclosures About Market
Risk |
Foreign Exchange Rate Sensitivity
Corillian develops products in the United States and markets its
products and services in the United States, and to a lesser
extent in Europe, Asia and Australia. As a result, its financial
results could be affected by factors such as changes in foreign
currency exchange rates or weak economic conditions in foreign
markets. Because nearly all of its revenue is currently
denominated in United States dollars, a strengthening of the
United States dollar could make Corillian’s products less
competitive in foreign markets.
Corillian does not use derivative financial instruments for
speculative purposes. Corillian does not engage in exchange rate
hedging or hold or issue foreign exchange contracts for trading
purposes. Corillian does have foreign-based operations where
transactions are denominated in foreign currencies and are
subject to market risk with respect to fluctuations in the
relative value of currencies. Currently, Corillian has limited
operations in Europe, Asia and Australia and conducts
transactions in various local currencies in these locales. To
date, the impact of fluctuations in the relative fair value of
other currencies has not been material.
Interest Rate Sensitivity
As of December 31, 2005 and 2004, Corillian had
$25.5 million and $39.4 million, respectively, in
cash, cash equivalents and short-term investments. Cash
equivalents consist mainly of demand deposit accounts, money
market mutual funds and commercial paper with original
maturities less than 90 days. Short-term investments
consist of taxable government agency bonds with original
maturities ranging between 90 and 180 days and taxable
municipal bonds, auction rate securities, with original
maturities greater than one year. Government agency bonds are
classified as
held-to-maturity. All
auction rate securities are classified as available-for-sale and
reported on the balance sheet at par value, which equals market
value, as these securities are bought and sold every 28 to
35 days. Corillian is not subject to interest rate risks on
its available-for-sale investments as these investments are all
bought and sold at par value. Corillian’s short-term
held-to-maturity
investments are subject to interest rate risk and will decrease
in value if market interest rates increase. Corillian manages
this risk by maintaining an investment portfolio with high
credit quality. Changes in the overall level of interest rates
affect our interest income that is generated from our short-term
investments. If interest rates increase or decrease equally
during 2006, by a total of one percent, Corillian’s
interest income would increase or decrease by approximately
$160,000, respectively. In 2006, Corillian may
36
invest in short-term investments with original maturities
greater than 180 days. These investments would be subject
to higher levels of interest rate risks.
|
|
| Item 8. |
Financial Statements and Supplementary Data |
(a) The following documents are filed as part of this
report:
|
|
| |
1. Annual Financial Statements |
| |
| |
The following consolidated financial statements of the Company
are filed as part of this Annual Report on
Form 10-K as
follows: |
INDEX TO FINANCIAL STATEMENTS
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Page | |
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| |
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F-1 |
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F-2 |
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F-3 |
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F-4 |
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F-5 |
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F-6 |
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|
| |
2. Financial Statement Schedules |
| |
| |
Financial statement schedules have been omitted because the
information required to be set forth therein is not applicable
or is included in the notes to the Consolidated Financial
Statements. |
| |
| |
3. Selected Quarterly Results of Operations |
| |
| |
The Selected Quarterly Results of Operations required by this
Item 8 are included in Note 12 to the Consolidated
Financial Statements. |
|
|
| Item 9. |
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure |
Not applicable.
|
|
| Item 9A. |
Controls and Procedures |
(a) Evaluation of disclosure controls and procedures.
The term “disclosure controls and procedures” (defined
in SEC
Rule 13a-15(e))
refers to the controls and other procedures of a company that
are designed to ensure that the information required to be
disclosed by a company in the reports that it files under the
Exchange Act is recorded, processed, summarized and reported
within required time periods. Corillian’s management, with
the participation of the Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the design
and operation of the Company’s disclosure controls and
procedures as of the end of the period covered by this annual
report (the Evaluation Date). Based on that evaluation,
Corillian’s management, with the participation of the Chief
Executive Officer and Chief Financial Officer have concluded
that, as of the Evaluation Date, such controls and procedures
were effective to ensure that information required to be
disclosed by Corillian in the reports that it files or submits
under the Securities and Exchange Act of 1934 is accumulated and
communicated to Corillian’s management, including its
principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.
(b) Management’s report on internal control over
financial reporting.
Management of Corillian Corporation is responsible for
establishing and maintaining adequate internal control over
financial reporting as defined in
Rules 13a-15(f)
and 15d-15(f) under the
Securities and
37
Exchange Act of 1934. Corillian Corporation’s internal
control system was designed to provide reasonable assurance to
the company’s management and board of directors regarding
the reliability and fair presentation of financial reporting and
the preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting
principles.
Internal control over financial reporting includes controls
themselves, monitoring and internal auditing practices and
actions taken to correct deficiencies as identified.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Corillian Corporation’s management assessed the
effectiveness of the company’s internal control over
financial reporting as of December 31, 2005. Management
based its assessment on criteria for effective internal control
over financial reporting described in Internal
Control — Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Management’s assessment
included an evaluation of the design of Corillian
Corporation’s internal control over financial reporting and
testing of the operational effectiveness of its internal control
over financial reporting. Management reviewed the results of its
assessment with the board of directors.
Based on this assessment, management has determined that, as of
December 31, 2005, Corillian Corporation maintained
effective internal control over financial reporting.
KPMG LLP, independent registered public accounting firm has
audited management’s assessment of the effectiveness of our
internal control over financial reporting as of
December 31, 2005 as stated in their report included in
(d) below.
(c) Changes in internal controls.
There was no change to Corillian’s internal control over
financial reporting during the quarter ended December 31,
2005 that has materially affected, or is reasonably likely to
materially affect, Corillian’s internal control over
financial reporting.
(d) Report of independent registered public accounting firm.
38
The Board of Directors and Shareholders
Corillian Corporation:
We have audited management’s assessment, included in the
accompanying Management Report on Internal Control Over
Financial Reporting, that Corillian Corporation maintained
effective internal control over financial reporting as of
December 31, 2005, based on criteria established in
Internal Control — Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Corillian Corporation’s management
is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility
is to express an opinion on management’s assessment and an
opinion on the effectiveness of the Company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
management’s assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Corillian
Corporation maintained effective internal control over financial
reporting as of December 31, 2005, is fairly stated, in all
material respects, based on criteria established in Internal
Control — Integrated Framework issued by COSO.
Also, in our opinion, Corillian Corporation maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2005, based on criteria
established in Internal Control — Integrated
Framework issued by COSO.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Corillian Corporation and
subsidiaries as of December 31, 2005 and 2004, and the
related consolidated statements of operations,
shareholders’ equity and cash flows for each of the years
in the three-year period ended December 31, 2005, and our
report dated March 15, 2006 expressed an unqualified
opinion on those consolidated financial statements.
Portland, Oregon
March 15, 2006
39
|
|
| Item 9B. |
Other Information |
Not applicable.
PART III
|
|
| Item 10. |
Directors and Executive Officers of the Registrant |
Corillian has adopted a code of ethics for its Chief Executive
Officer and senior financial officers. Corillian has made the
code of ethics available in the Investor Relations section of
its website at www.corillian.com. If Corillian waives, or
implicitly waives, any material provision of the code, or
substantially amends the code, Corillian will disclose that fact
in the Investor Relations section of its website at
www.corillian.com.
The other information called for by Part III, Item 10,
is incorporated by reference to the applicable information in
Corillian’s Proxy Statement relating to Corillian’s
2006 annual meeting of shareholders, which Corillian intends to
file within 120 days of December 31, 2005,
Corillian’s fiscal year end.
|
|
| Item 11. |
Executive Compensation |
Information called for by Part III, Item 11, is
incorporated by reference to the applicable information in
Corillian’s Proxy Statement relating to Corillian’s
2006 annual meeting of shareholders, which Corillian intends to
file within 120 days of December 31, 2005,
Corillian’s fiscal year end.
|
|
| Item 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Shareholder Matters |
Information called for by Part III, Item 12, but not
included below, is incorporated by reference to the applicable
information in Corillian’s Proxy Statement relating to
Corillian’s 2006 annual meeting of shareholders, which
Corillian intends to file within 120 days of
December 31, 2005, Corillian’s fiscal year end.
|
|
|
Equity Compensation Plan Information |
The following table provides information as of December 31,
2005 about Corillian’s common stock that may be issued to
employees, consultants or directors under Corillian’s
currently existing equity compensation plans:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Securities Authorized for Issuance | |
| |
|
Under Equity Compensation Plans | |
| |
|
| |
| |
|
Number of Shares to | |
|
|
|
Number of Shares | |
| |
|
be Issued Upon | |
|
Weighted-Average | |
|
Remaining Available for | |
| |
|
Exercise of | |
|
Exercise Price of | |
|
Issuance Under Equity | |
| |
|
Outstanding Options | |
|
Outstanding Options | |
|
Compensation Plans | |
| |
|
| |
|
| |
|
| |
|
Equity compensation plans approved by shareholders
|
|
|
5,780,181 |
(1) |
|
$ |
3.77 |
|
|
|
1,030,441 |
(2)(3) |
|
Equity compensation plans not approved by shareholders
|
|
|
594,563 |
|
|
|
5.63 |
|
|
|
251,562 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
6,374,744 |
|
|
$ |
3.94 |
|
|
|
1,282,003 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Excludes 585 shares of Corillian’s common stock that
are issuable upon the exercise of outstanding options that were
assumed in connection with Corillian’s acquisition of
Hatcher Associates Inc., with a weighted average exercise price
of $6.84. |
| |
| (2) |
Includes 1,030,384 shares remaining available for issuance
under Corillian’s 2000 Stock Incentive Compensation Plan.
The 2000 Stock Incentive Compensation Plan includes an evergreen
formula pursuant to which the number of shares authorized for
grant will be increased annually by the lesser of
(1) 400,000 shares, and (2) an amount equal to
one percent of the average outstanding shares of the |
40
|
|
|
common stock of the Company as of the end of the immediately
preceding fiscal year on a fully-diluted basis; plus any shares
subject to outstanding awards under Corillian’s 1997 Stock
Option Plan as of the effective date of the 2000 Stock Incentive
Compensation Plan that cease to be subject to such awards other
than by reason of exercise or payment of such awards. Excludes
400,000 additional shares of common stock that became available
for purchase under the 2000 Stock Incentive Compensation Plan on
January 1, 2006 pursuant to the evergreen formula. Shares
that remain available for purchase under Corillian’s 2000
Stock Incentive Compensation Plan may be granted as stock
options, stock awards, restricted stock awards or restricted
stock units. |
| |
| (3) |
Includes 57 shares remaining available for issuance under
Corillian’s 2000 Employee Stock Purchase Plan. The 2000
Employee Stock Purchase Plan includes an evergreen formula
pursuant to which the number of shares authorized for grant will
be increased annually by the lesser of (1) 333,333 shares,
(2) an amount equal to two percent of the average number of
shares of common stock outstanding on a fully diluted basis as
of the end of our immediately preceding fiscal year, and
(3) a lesser amount determined by our Board of Directors.
Excludes 333,333 additional shares of common stock that became
available for issuance under the 2000 Employee Stock Purchase
Plan on January 1, 2006 pursuant to the evergreen formula. |
2003 Nonqualified Stock Incentive Compensation Plan. In
May 2003, Corillian’s Board of Directors adopted the 2003
Nonqualified Stock Incentive Compensation Plan and authorized
the issuance of 1,000,000 shares of common stock under the
plan. This plan was adopted as a retention plan for
Corillian’s employees. Because the Company did not obtain
shareholder approval for this plan, the Company may not grant
stock options under this plan to any existing directors or
officers. A significant number of stock options outstanding
under Corillian’s previously approved stock option plans
had exercise prices that were significantly higher than
Corillian’s stock price in May 2003, and Corillian did not
anticipate that those stock options would be exercised in the
near future or at all, absent extraordinary stock price
appreciation. The Board carefully evaluated the alternatives
available for providing incentives for and retaining employees
and decided to make additional option grants rather than
conducting a company-wide option cancellation program or
re-pricing. As a result of this decision, the Board decided that
it was necessary to adopt this plan. The Board acted to keep the
long-term interests of Corillian’s workforce tightly
aligned with the long-term interests of shareholders and to
counter any financial incentive competitors might offer to
Corillian employees. Corillian does not intend to adopt or
materially modify any stock compensation plans in the future
without shareholder approval.
Corillian’s 2003 Nonqualified Stock Incentive Compensation
Plan enhances long-term shareholder value by offering
opportunities to its employees, consultants, agents, advisors
and independent contractors to participate in Corillian’s
growth and success, to encourage them to remain in its service
and to own its stock. Corillian’s 2003 Nonqualified Stock
Incentive Compensation Plan permits both option and stock
grants. Corillian has reserved 1,000,000 shares of common
stock for its 2003 Nonqualified Stock Incentive Compensation
Plan. The plan administrator will make proportional adjustments
to the aggregate number of shares issuable under the 2003
Nonqualified Stock Incentive Compensation Plan and to
outstanding awards in the event of stock splits or other capital
adjustments.
The compensation committee serves as the plan administrator of
the 2003 Nonqualified Stock Incentive Compensation Plan. The
plan administrator selects individuals to receive options and
specifies the terms and conditions of each option granted,
including the exercise price, the vesting provisions and the
option term.
Unless otherwise provided by the plan administrator, options
granted under the 2003 Nonqualified Stock Incentive Compensation
Plan vest over a four-year period, and generally will expire on
the earliest of ten years from the date of grant; one year after
the optionee’s retirement, death or disability; notice to
the optionee of termination of employment or service for cause;
and three months after other terminations of employment or
service.
The plan administrator is authorized under the 2003 Nonqualified
Stock Incentive Compensation Plan to issue shares of common
stock to eligible participants with terms, conditions and
restrictions established by the plan administrator in its sole
discretion. Restrictions may be based on continuous service or
the achievement
41
of performance goals. Holders of restricted stock are
shareholders of Corillian and have, subject to established
restrictions, all the rights of shareholders with respect to
such shares.
In the event of a corporate transaction, such as a merger or
sale, each outstanding option to purchase shares under the 2003
Nonqualified Stock Incentive Compensation Plan may be assumed or
an equivalent option substituted by the buyer. If the successor
corporation does not assume or provide an equivalent substitute
for the option, the option terminates, but the optionee has the
right to exercise the vested and unvested portion of the option
immediately before the corporate transaction. Some option
agreements may call for accelerated vesting in the event of a
corporate transaction even if the successor corporation assumes
the option or provides an equivalent substitute for the option
if the employee is terminated by the successor corporation
within one year after the transaction or if the employee
terminates his or her employment with the successor corporation
within one year after the transaction for specified reasons,
such as a reduction in compensation or title. In addition, the
plan administrator has discretion to accelerate the vesting of
options in the event of a corporate transaction.
Unless terminated sooner by the Board of Directors, the 2003
Nonqualified Stock Incentive Compensation Plan will terminate
ten years from the date of its approval by the board of
directors.
|
|
| Item 13. |
Certain Relationships and Related Transactions |
Information called for by Part III, Item 13, is
incorporated by reference to the applicable information in
Corillian’s Proxy Statement relating to Corillian’s
2006 annual meeting of shareholders, which Corillian intends to
file within 120 days of December 31, 2005,
Corillian’s fiscal year end.
|
|
| Item 14. |
Principal Accountant Fees and Services |
Information called for by Part III, Item 14, is
incorporated by reference to the applicable information in
Corillian’s Proxy Statement relating to Corillian’s
2006 annual meeting of shareholders, which Corillian intends to
file within 120 days of December 31, 2005,
Corillian’s fiscal year end.
42
PART IV
|
|
| Item 15. |
Exhibits and Financial Statement Schedules |
(a) Documents filed as part of this Report:
|
|
| |
(1) Financial Statements |
| |
| |
All consolidated financial statements of the Company as set
forth under Item 8 of this Report. |
| |
| |
(2) Financial Statement Schedules |
| |
| |
Financial statement schedules have been omitted because the
information required to be set forth therein is not applicable
or is included in the notes to the Consolidated Financial
Statements. |
| |
| |
(3) Exhibits |
| |
| |
The exhibits listed on the accompanying Exhibit Index
immediately following the financial statement schedule are filed
as part of, or incorporated by reference into, this
Form 10-K.
|
43
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on March 16, 2006.
|
|
| |
|
| |
Chief Financial Officer |
| |
(Principal Financial Officer) |
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below on March 16, 2006
by the following persons on behalf of the Registrant and in the
capacities indicated.
| |
|
|
|
|
| Signature |
|
Capacities |
| |
|
|
| |
/s/ ALEX P. HART
Alex P. Hart |
|
Chief Executive Officer and Director
Principal Executive Officer |
| |
/s/ PAUL K. WILDE
Paul K. Wilde |
|
Chief Financial Officer
Principal Financial and Accounting Officer |
| |
/s/ ROBERT G. BARRETT
Robert G. Barrett |
|
Director |
| |
/s/ ERIC DUNN
Eric Dunn |
|
Director |
| |
/s/ TYREE B. MILLER
Tyree B. Miller |
|
Director |
| |
/s/ JAMES R. STOJAK
James R. Stojak |
|
Director |
| |
/s/ JAY N.
WHIPPLE III
Jay N. Whipple III |
|
Director |
44
| |
|
|
|
|
| Exhibit |
|
|
| No. |
|
Description |
| |
|
|
| |
2 |
.1 |
|
Agreement and Plan of Merger, dated March 31, 2005, by and
among Corillian Corporation, InteliData Technologies Corporation
and Wizard Acquisition Corporation (incorporated by reference to
Exhibit 2.1 of Corillian’s report on Form 8-K
dated March 31, 2005) |
| |
| |
2 |
.2 |
|
Agreement and Plan of Merger, dated August 5, 2005, by and
among Corillian Corporation, qbt Systems Inc., Quantum
Acquisition Corporation, Quarry Acquisition LLC and the
Shareholders of qbt Systems Inc. (incorporated by reference to
Exhibit 2.1 of Corillian’s report on Form 8-K
dated August 5, 2005) |
| |
| |
3 |
.1 |
|
Articles of Incorporation (incorporated by reference to
Exhibit 3.2 of Corillian’s Form S-1, as amended,
File No. 333-95513) |
| |
| |
3 |
.2 |
|
Bylaws (incorporated by reference to Exhibit 3.4 of
Corillian’s Form S-1, as amended, File
No. 333-95513) |
| |
| |
4 |
.1 |
|
Form of Common Stock certificate (incorporated by reference to
Exhibit 4.1 of Corillian’s Form S-1, as amended,
File No. 333-95513) |
| |
| |
10 |
.1* |
|
Corillian’s Amended and Restated 2000 Stock Incentive
Compensation Plan (incorporated by reference to
Exhibit 99.2 of Corillian’s Form S-8 filed on
November 1, 2001, File No. 333-72652) |
| |
| |
10 |
.2* |
|
Corillian’s 2000 Employee Stock Purchase Plan (incorporated
by reference to Exhibit 99.1 of Corillian’s
Form S-8 filed on November 1, 2001, File
No. 333-72652) |
| |
| |
10 |
.3* |
|
Corillian’s Amended and Restated 1997 Stock Option Plan |
| |
| |
10 |
.4 |
|
Lease between CarrAmerica Realty Corporation and Corillian,
dated May 22, 2000 |
| |
| |
10 |
.5 |
|
Loan Agreement between Corillian Corporation and Silicon Valley
Bank, dated November 9, 2000 |
| |
| |
10 |
.6* |
|
Form of Stock Option Agreement with certain employees |
| |
| |
10 |
.7 |
|
Loan Modification Agreement between Corillian Corporation and
Silicon Valley Bank, dated November 30, 2001 (incorporated
by reference to Exhibit 10.9 of Corillian’s report on
Form 10-K for the year ended December 31, 2001) |
| |
| |
10 |
.8* |
|
Form of Indemnification Agreement between Corillian and its
directors and executive officers (incorporated by reference to
Exhibit 10.13 of Corillian’s report on Form 10-Q
for the quarter ended March 31, 2001) |
| |
| |
10 |
.9* |
|
Form of Severance Agreement with Executive Officers and Certain
Other Key Employees (incorporated by reference to
Exhibit 10.1 of Corillian’s report on Form 10-Q
for the quarter ended June 30, 2002) |
| |
| |
10 |
.10 |
|
Loan Modification Agreement between Corillian Corporation and
Silicon Valley Bank, dated November 13, 2002 (incorporated
by reference to Exhibit 10.5 of Corillian’s report on
Form 10-Q for the quarter ended September 30, 2002) |
| |
| |
10 |
.11* |
|
Corillian Corporation 2003 Nonqualified Stock Incentive
Compensation Plan (incorporated by reference to
Exhibit 10.1 of Corillian’s report on Form 10-Q
for the quarter ended June 30, 2003) |
| |
| |
10 |
.12* |
|
Form of Stock Option Agreement under Corillian Corporation 2003
Nonqualified Stock Incentive Compensation Plan (incorporated by
reference to Exhibit 10.2 of Corillian’s report on
Form 10-Q for the quarter ended June 30, 2003) |
| |
| |
10 |
.13* |
|
Form of Stock Option Agreement with certain employees under
Corillian Corporation 2003 Nonqualified Stock Incentive
Compensation Plan (incorporated by reference to
Exhibit 10.3 of Corillian’s report on Form 10-Q
for the quarter ended June 30, 2003) |
| |
| |
10 |
.14 |
|
Loan Modification Agreement between Corillian Corporation and
Silicon Valley Bank, dated June 16, 2003 (incorporated by
reference to Exhibit 10.4 of Corillian’s report on
Form 10-Q for the quarter ended June 30, 2003) |
| |
| |
10 |
.15* |
|
Form of Amendment to Stock Option Letter Agreements for Certain
Employees under the 2000 Stock Incentive Compensation Plan
(incorporated by reference to Exhibit 10.1 of
Corillian’s report on Form 10-Q for the quarter ended
September 30, 2003) |
| |
| |
10 |
.16* |
|
Form of Severance Agreement for Certain Employees (incorporated
by reference to Exhibit 10.2 of Corillian’s report on
Form 10-Q for the quarter ended September 30, 2003) |
45
| |
|
|
|
|
| Exhibit |
|
|
| No. |
|
Description |
| |
|
|
| |
| |
10 |
.17 |
|
First Amendment to Lease Agreement between CarrAmerica Realty
Operating Partnership, L.P. and Corillian Corporation, dated
August 23, 2004 (incorporated by reference to
Exhibit 99.1 of Corillian’s report on Form 8-K
dated August 23, 2004) |
| |
| |
10 |
.18* |
|
Separation Agreement and General Release between Corillian
Corporation and an Executive Officer, dated February, 17,
2005 (incorporated by reference to Exhibit 10.1 of
Corillian’s report on Form 8-K dated February 17,
2005) |
| |
| |
10 |
.19 |
|
Key terms of Executive compensation arrangements |
| |
| |
10 |
.20 |
|
Key terms of Director compensation arrangements |
| |
| |
21 |
.1 |
|
Subsidiaries of the Company |
| |
| |
23 |
.1 |
|
Consent of KPMG LLP, Independent Registered Public Accounting
Firm |
| |
| |
31 |
.1 |
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 |
| |
| |
31 |
.2 |
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 |
| |
| |
32 |
.1 |
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 |
|
|
| * |
Management contract or compensatory plan |
46
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Corillian Corporation:
We have audited the accompanying consolidated balance sheets of
Corillian Corporation and subsidiaries as of December 31,
2005 and 2004, and the related consolidated statements of
operations, shareholders’ equity, and cash flows for each
of the years in the three-year period ended December 31,
2005. These consolidated financial statements are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Corillian Corporation and subsidiaries as of
December 31, 2005 and 2004, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2005 in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Corillian Corporation’s internal control
over financial reporting as of December 31, 2005, based on
criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our
report dated March 15, 2006 expressed an unqualified
opinion on management’s assessment of, and the effective
operation of, internal control over financial reporting.
/s/ KPMG LLP
Portland, Oregon
March 15, 2006
F-1
CORILLIAN CORPORATION
CONSOLIDATED BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
ASSETS |
|
Current assets:
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
16,722 |
|
|
$ |
29,200 |
|
| |
Short-term investments
|
|
|
8,800 |
|
|
|
10,150 |
|
| |
Accounts receivable, net
|
|
|
12,063 |
|
|
|
8,218 |
|
| |
Other receivables
|
|
|
780 |
|
|
|
206 |
|
| |
Revenue in excess of billings
|
|
|
2,387 |
|
|
|
1,363 |
|
| |
Prepaid expenses and deposits
|
|
|
2,527 |
|
|
|
1,696 |
|
| |
|
|
|
|
|
|
| |
|
Total current assets
|
|
|
43,279 |
|
|
|
50,833 |
|
|
Property and equipment, net
|
|
|
3,548 |
|
|
|
3,800 |
|
|
Goodwill
|
|
|
26,899 |
|
|
|
— |
|
|
Intangibles, net
|
|
|
3,856 |
|
|
|
— |
|
|
Other assets
|
|
|
1,757 |
|
|
|
636 |
|
| |
|
|
|
|
|
|
| |
|
Total assets
|
|
$ |
79,339 |
|
|
$ |
55,269 |
|
| |
|
|
|
|
|
|
| |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
Current liabilities:
|
|
|
|
|
|
|
|
|
| |
Accounts payable
|
|
$ |
2,672 |
|
|
$ |
979 |
|
| |
Accrued liabilities
|
|
|
3,589 |
|
|
|
2,468 |
|
| |
Deferred revenue
|
|
|
15,522 |
|
|
|
16,630 |
|
| |
Current portion of long-term debt and capital lease obligations
|
|
|
3 |
|
|
|
296 |
|
| |
Other current liabilities
|
|
|
1,882 |
|
|
|
1,043 |
|
| |
|
|
|
|
|
|
| |
|
Total current liabilities
|
|
|
23,668 |
|
|
|
21,416 |
|
|
Long-term debt and capital lease obligations, less current
portion
|
|
|
— |
|
|
|
629 |
|
|
Other long-term liabilities
|
|
|
938 |
|
|
|
622 |
|
| |
|
|
|
|
|
|
| |
|
Total liabilities
|
|
|
24,606 |
|
|
|
22,667 |
|
| |
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
| |
Common stock, no par value; 150,000 shares authorized;
44,696 and 38,408 shares issued and outstanding at
December 31, 2005 and 2004, respectively
|
|
|
149,447 |
|
|
|
129,969 |
|
| |
Accumulated other comprehensive income
|
|
|
61 |
|
|
|
61 |
|
| |
Accumulated deficit
|
|
|
(94,775 |
) |
|
|
(97,428 |
) |
| |
|
|
|
|
|
|
| |
|
Total shareholders’ equity
|
|
|
54,733 |
|
|
|
32,602 |
|
| |
|
|
|
|
|
|
| |
|
Total liabilities and shareholders’ equity
|
|
$ |
79,339 |
|
|
$ |
55,269 |
|
| |
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-2
CORILLIAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share data) | |
|
Revenues
|
|
$ |
49,220 |
|
|
$ |
50,794 |
|
|
$ |
46,132 |
|
|
Cost of revenues
|
|
|
20,296 |
|
|
|
18,449 |
|
|
|
20,501 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Gross profit
|
|
|
28,924 |
|
|
|
32,345 |
|
|
|
25,631 |
|
| |
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Sales and marketing
|
|
|
7,850 |
|
|
|
7,291 |
|
|
|
6,422 |
|
| |
Research and development
|
|
|
10,789 |
|
|
|
6,690 |
|
|
|
5,968 |
|
| |
General and administrative
|
|
|
8,429 |
|
|
|
6,688 |
|
|
|
6,810 |
|
| |
Amortization of deferred stock-based compensation
|
|
|
— |
|
|
|
— |
|
|
|
35 |
|
| |
Impairment charges
|
|
|
— |
|
|
|
491 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total operating expenses
|
|
|
27,068 |
|
|
|
21,160 |
|
|
|
19,235 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Income from operations
|
|
|
1,856 |
|
|
|
11,185 |
|
|
|
6,396 |
|
|
Other income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest income
|
|
|
1,003 |
|
|
|
412 |
|
|
|
224 |
|
| |
Interest expense
|
|
|
(25 |
) |
|
|
(140 |
) |
|
|
(244 |
) |
| |
Loss on joint venture
|
|
|
(128 |
) |
|
|
(813 |
) |
|
|
(1,133 |
) |
| |
Other income (expense), net
|
|
|
8 |
|
|
|
(4 |
) |
|
|
7 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total other income (expense), net
|
|
|
858 |
|
|
|
(545 |
) |
|
|
(1,146 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Net income before income taxes
|
|
|
2,714 |
|
|
|
10,640 |
|
|
|
5,250 |
|
|
Income taxes
|
|
|
61 |
|
|
|
160 |
|
|
|
124 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Net income
|
|
$ |
2,653 |
|
|
$ |
10,480 |
|
|
$ |
5,126 |
|
| |
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$ |
0.06 |
|
|
$ |
0.28 |
|
|
$ |
0.14 |
|
|
Diluted net income per share
|
|
$ |
0.06 |
|
|
$ |
0.26 |
|
|
$ |
0.14 |
|
|
Shares used in computing basic net income per share
|
|
|
41,039 |
|
|
|
37,727 |
|
|
|
36,431 |
|
|
Shares used in computing diluted net income per share
|
|
|
42,146 |
|
|
|
40,474 |
|
|
|
37,813 |
|
See accompanying notes to consolidated financial statements.
F-3
CORILLIAN CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Accumulated | |
|
|
|
|
| |
|
Common Stock | |
|
Deferred | |
|
Other | |
|
|
|
Total | |
| |
|
| |
|
Stock-Based | |
|
Comprehensive | |
|
Accumulated | |
|
Shareholders’ | |
| |
|
Shares | |
|
Amount | |
|
Compensation | |
|
Income (Loss) | |
|
Deficit | |
|
Equity | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Balance, December 31, 2002
|
|
|
36,147 |
|
|
$ |
126,141 |
|
|
$ |
(35 |
) |
|
$ |
49 |
|
|
$ |
(113,034 |
) |
|
$ |
13,121 |
|
|
Exercise of common stock options
|
|
|
490 |
|
|
|
1,115 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,115 |
|
|
Issuance of common shares under employee stock purchase plan
|
|
|
254 |
|
|
|
158 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
158 |
|
|
Amortization of deferred stock-based compensation
|
|
|
— |
|
|
|
— |
|
|
|
35 |
|
|
|
— |
|
|
|
— |
|
|
|
35 |
|
|
Foreign currency translation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
|
|
(1 |
) |
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,126 |
|
|
|
5,126 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
|
36,891 |
|
|
$ |
127,414 |
|
|
$ |
— |
|
|
$ |
48 |
|
|
$ |
(107,908 |
) |
|
$ |
19,554 |
|
|
Exercise of common stock options
|
|
|
1,009 |
|
|
|
1,969 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,969 |
|
|
Issuance of common shares under employee stock purchase plan
|
|
|
508 |
|
|
|
505 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
505 |
|
|
Income tax benefit of equity transactions
|
|
|
— |
|
|
|
81 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
81 |
|
|
Foreign currency translation
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
13 |
|
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,480 |
|
|
|
10,480 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
|
38,408 |
|
|
$ |
129,969 |
|
|
$ |
— |
|
|
$ |
61 |
|
|
$ |
(97,428 |
) |
|
$ |
32,602 |
|
|
Issuance of common stock in InteliData acquisition, net of
registration costs
|
|
|
4,917 |
|
|
|
16,309 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16,309 |
|
|
Issuance of common stock in qbt acquisition
|
|
|
643 |
|
|
|
2,059 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,059 |
|
|
Exercise of common stock options
|
|
|
334 |
|
|
|
470 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
470 |
|
|
Issuance of common shares under employee stock purchase plan
|
|
|
394 |
|
|
|
620 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
620 |
|
|
Income tax benefit of equity transactions
|
|
|
— |
|
|
|
20 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
20 |
|
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,653 |
|
|
|
2,653 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
44,696 |
|
|
$ |
149,447 |
|
|
$ |
— |
|
|
$ |
61 |
|
|
$ |
(94,775 |
) |
|
$ |
54,733 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
CORILLIAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
2,653 |
|
|
$ |
10,480 |
|
|
$ |
5,126 |
|
| |
Adjustments to reconcile net income to net cash (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Depreciation
|
|
|
1,534 |
|
|
|
2,200 |
|
|
|
3,715 |
|
| |
|
Amortization of deferred stock-based compensation
|
|
|
— |
|
|
|
— |
|
|
|
35 |
|
| |
|
Amortization of intangible assets
|
|
|
644 |
|
|
|
— |
|
|
|
— |
|
| |
|
Impairment of long-lived assets
|
|
|
— |
|
|
|
491 |
|
|
|
— |
|
| |
|
Equity in losses of joint venture
|
|
|
128 |
|
|
|
813 |
|
|
|
1,133 |
|
| |
|
Recovery of bad debts
|
|
|
(41 |
) |
|
|
(199 |
) |
|
|
(173 |
) |
| |
|
(Gain) loss on sale of assets
|
|
|
(8 |
) |
|
|
(7 |
) |
|
|
8 |
|
| |
|
Income tax benefit of equity transactions
|
|
|
20 |
|
|
|
81 |
|
|
|
— |
|
| |
|
Changes in operating assets and liabilities, net of assets
acquired and liabilities assumed (see Note 8) |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Restricted cash
|
|
|
— |
|
|
|
— |
|
|
|
1,003 |
|
| |
|
|
Accounts receivable
|
|
|
(2,419 |
) |
|
|
(1,925 |
) |
|
|
(1,931 |
) |
| |
|
|
Other receivables
|
|
|
(326 |
) |
|
|
20 |
|
|
|
1,562 |
|
| |
|
|
Revenue in excess of billings
|
|
|
(616 |
) |
|
|
(105 |
) |
|
|
284 |
|
| |
|
|
Prepaid expenses, deposits and other assets
|
|
|
(899 |
) |
|
|
(523 |
) |
|
|
380 |
|
| |
|
|
Accounts payable and accrued liabilities
|
|
|
(4,463 |
) |
|
|
190 |
|
|
|
(596 |
) |
| |
|
|
Deferred revenue
|
|
|
(1,697 |
) |
|
|
1,070 |
|
|
|
1,579 |
|
| |
|
|
Other liabilities
|
|
|
550 |
|
|
|
(159 |
) |
|
|
(840 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(4,940 |
) |
|
|
12,427 |
|
|
|
11,285 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Purchase of property and equipment
|
|
|
(1,095 |
) |
|
|
(728 |
) |
|
|
(1,112 |
) |
| |
Proceeds from sale of property and equipment
|
|
|
8 |
|
|
|
9 |
|
|
|
— |
|
| |
Purchase of available-for-sale investments
|
|
|
(8,250 |
) |
|
|
(19,000 |
) |
|
|
(15,450 |
) |
| |
Proceeds from the sales of available-for-sale Investments
|
|
|
9,600 |
|
|
|
18,150 |
|
|
|
9,650 |
|
| |
Purchase of held-to-maturity investments
|
|
|
— |
|
|
|
(1,200 |
) |
|
|
(601 |
) |
| |
Proceeds from the maturities of held-to-maturity Investments
|
|
|
— |
|
|
|
1,801 |
|
|
|
910 |
|
| |
Investment in joint venture
|
|
|
— |
|
|
|
— |
|
|
|
(1,000 |
) |
| |
Cash paid for acquisition of InteliData, net of cash acquired
|
|
|
(4,509 |
) |
|
|
— |
|
|
|
— |
|
| |
Cash paid for acquisition of qbt, net of cash acquired
|
|
|
(3,150 |
) |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash used in investing activities
|
|
|
(7,396 |
) |
|
|
(968 |
) |
|
|
(7,603 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Proceeds from the issuance of common stock
|
|
|
1,090 |
|
|
|
2,474 |
|
|
|
1,273 |
|
| |
Registration costs associated with shares issued in business
combinations
|
|
|
(309 |
) |
|
|
— |
|
|
|
— |
|
| |
Proceeds from line of credit borrowings
|
|
|
— |
|
|
|
— |
|
|
|
1,000 |
|
| |
Payments on line of credit borrowings
|
|
|
(911 |
) |
|
|
(1,662 |
) |
|
|
(1,860 |
) |
| |
Principal payments on capital lease obligations
|
|
|
(11 |
) |
|
|
(17 |
) |
|
|
(381 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(141 |
) |
|
|
795 |
|
|
|
32 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Effect of exchange rate fluctuations on cash and cash equivalents
|
|
|
(1 |
) |
|
|
3 |
|
|
|
8 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(12,478 |
) |
|
|
12,257 |
|
|
|
3,722 |
|
|
Cash and cash equivalents at beginning of year
|
|
|
29,200 |
|
|
|
16,943 |
|
|
|
13,221 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
16,722 |
|
|
$ |
29,200 |
|
|
$ |
16,943 |
|
| |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Interest
|
|
$ |
25 |
|
|
$ |
140 |
|
|
$ |
244 |
|
| |
|
Taxes
|
|
|
113 |
|
|
|
97 |
|
|
|
131 |
|
|
Supplemental disclosures of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Common stock issued in InteliData acquisition
|
|
$ |
16,618 |
|
|
|
— |
|
|
|
— |
|
| |
Common stock issued in qbt acquisition
|
|
|
2,059 |
|
|
|
— |
|
|
|
— |
|
See accompanying notes to consolidated financial statements.
F-5
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
| (1) |
Description of Company |
Corillian Corporation was incorporated in Oregon in 1997.
Corillian is a provider of solutions that enable banks, brokers
and other financial service providers to rapidly deploy
Internet-based financial services. Corillian’s solutions
allow consumers to conduct financial transactions, view personal
and market financial information, pay bills and access other
financial services on the Internet. Corillian Voyager is a
software platform combined with a set of applications for
Internet banking, electronic bill presentment and payment,
targeted marketing, data aggregation and online customer
relationship management. Corillian also offers a variety of
services to support its customers throughout the process of
implementing and maintaining its solutions.
|
|
| (2) |
Summary of Significant Accounting Policies |
The preparation of consolidated financial statements in
accordance with U.S. generally accepted accounting
principles requires Corillian to make estimates and judgments
that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent
assets and liabilities. Corillian bases its estimates on
historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent
from other sources. Estimates related to software revenue
recognition, accrual for contracts in a loss position, valuation
of long-lived assets, including intangible assets, which include
goodwill and the valuation allowance for deferred tax assets
require higher degrees of judgment than others in their
application. Actual results may differ from these estimates
under different assumptions or conditions.
|
|
| (b) |
Principles of Consolidation |
The consolidated financial statements include the financial
statements of Corillian Corporation and its wholly-owned
subsidiaries, Corillian International, Ltd., Corillian South
Asia Sdn Bhd., Corillian Community Banking Solutions, LLC and
Corillian Payment Solutions, Inc. All intercompany balances and
transactions have been eliminated in consolidation.
Corillian recognizes revenues from software licensing agreements
in accordance with the provisions of Statement of Position
(SOP) No. 97-2, Software Revenue Recognition,
as amended by SOP No. 98-9, Modification of SOP
No. 97-2, Software Revenue Recognition, with Respect to
Certain Transactions. Corillian’s software arrangements
generally include software licenses, implementation and custom
software engineering services, post-contractual customer
support, training services and may also include hosting
services. Corillian’s software licenses are, in general,
functionally dependent on implementation, training and certain
custom software engineering services; therefore, software
licenses and implementation and training services, together with
custom software engineering services that are essential to the
functionality of the software, are combined and recognized using
the
percentage-of-completion
method of contract accounting in accordance with SOP
No. 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts.
Corillian has determined that post-contractual customer support
and hosting services can be separated from software licenses,
implementation, training and custom software engineering
services because (a) post-contractual customer support and
hosting services are not essential to the functionality of any
other element in the arrangement, and (b) sufficient
vendor-specific objective evidence exists to permit the
allocation of revenue to these service elements. The hosting
element can be accounted for separately from the license
element, as the customer can take possession of the software
without significant penalty, in accordance
F-6
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
with Emerging Issues Task Force (EITF) 00-3, Application
of AICPA Statement of Position 97-2 to Arrangements that Include
the Right to Use Software Stored on Another Entity’s
Hardware.
The
percentage-of-completion
method is measured by the percentage of contract hours incurred
to date compared to the estimated total contract hours for each
contract. Corillian has the ability to make reasonably
dependable estimates relating to the extent of progress towards
completion, contract revenues and contract costs. Any estimation
process, including that used in preparing contract accounting
models, involves inherent risk. Profit estimates are subject to
revision as the contract progresses towards completion.
Revisions in profit estimates are charged to income in the
period that the facts giving rise to the revision become known.
Corillian reduces the inherent risk relating to revenue and cost
estimates in
percentage-of-completion
models through various approval and monitoring processes and
policies. Risks relating to service delivery, usage,
productivity and other factors are considered in the estimation
process. Cumulative revenues recognized may be less or greater
than cumulative billings at any point in time during a
contract’s term. The resulting difference is recognized as
deferred revenue or revenue in excess of billings, respectively.
Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined.
Vendor-specific objective evidence has been established on
post-contractual customer support and hosting services using the
renewal rate. Corillian allocates revenue to certain elements in
multiple element arrangements using the residual method. The
difference between the total software arrangement fee and the
amount deferred for post-contractual customer support and
hosting services is allocated to software license,
implementation, training and custom software engineering
services and recognized using contract accounting.
Revenues for post-contractual customer support are recognized
ratably over the term of the support services period, generally
a period of one year. Services provided to customers under
customer support and maintenance agreements generally include
technical support and unspecified product upgrades deliverable
on a when and if available basis. Revenues from hosting services
for transactions processed by Corillian are recognized ratably
over the hosting term.
Pursuant to SOP No. 81-1, on projects where reasonable
estimates cannot be made due to inherent hazards, but where
there is an assurance no loss will be incurred, Corillian limits
revenue recognition in the period to the amount of project costs
incurred in the same period, and postpones recognition of
profits until results can be estimated more precisely. Under
this “zero profit” methodology, equal amounts of
revenues and costs, measured on the basis of performance during
the period, are presented in Corillian’s consolidated
statements of operations.
Due to certain triggering events included in a customer’s
contract, beginning with the three-month period ended
September 30, 2002, Corillian applied the “zero
profit” methodology discussed above to three existing
projects for one customer. Both revenues and expenses recognized
from these projects accounted for under the “zero
profit” methodology during the years ended
December 31, 2003 and 2002, was approximately $714,000 and
$271,000, respectively. As all three of this customer’s
projects were completed and accepted during 2003, Corillian
recognized an additional $1.0 million of revenue related to
these projects, which had been previously deferred until
completion of the projects, during the year ended
December 31, 2003. Since all costs of revenues associated
with these projects had been previously recognized using the
“zero profit” methodology, recognition of this
deferred revenue resulted in the corresponding recognition of
$1.0 million in gross profit during the year ended
December 31, 2003. No further revenues were deferred on
these projects as of December 31, 2003.
Corillian generally licenses its products on an end-user basis,
with its initial license fee based on a fixed number of end
users. As a customer increases its installed base of end users
beyond the initial fixed number of end users, Corillian’s
software license agreements require customers to pay Corillian
an additional license fee to cover additional increments of end
users. Revenues from additional license seat sales, less any
amounts related to maintenance included in the arrangement, are
generally recognized in the period in which the
F-7
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
licenses are sold as delivery has already occurred. Revenue from
transactional services are recognized as transactions are
processed.
In arrangements where Corillian does not have an obligation to
install its products, but may become involved in the
installation of these products, Corillian recognizes
non-refundable license fees over the estimated implementation
period for the customer or reseller’s project. If Corillian
determines that the customer or reseller can successfully
install Corillian’s products in a production environment
without Corillian’s involvement, Corillian will recognize
non-refundable license fees in the period in which delivery
occurs, assuming all other SOP No. 97-2 revenue recognition
criteria are met.
In certain arrangements, Corillian may defer all revenues and
related costs of revenues until delivery is complete and
customer acceptance is obtained. These arrangements have certain
elements of risk such as an obligation to deliver new products
when technological feasibility has not been obtained at the
onset of the arrangement or an obligation to deliver software
customized to a customer specifications. In arrangements where
Corillian is providing customized functionality on a best
efforts basis, Corillian generally recognizes revenues as
services are performed. At December 31, 2005, Corillian
applied this methodology to one existing project. Total deferred
project costs under the completed contract method were $770,000
at December 31, 2005.
Where Corillian’s customers enter into arrangements to
purchase Corillian’s software and services on a
subscription basis, Corillian recognizes revenue in accordance
with Staff Accounting Bulletin (SAB) No. 104, Revenue
Recognition in Financial Statements. Under these
arrangements, Corillian defers recognition of the implementation
and license revenue and recognizes them ratably over the greater
of the initial life of the customer contract or the estimated
life of the customer service relationship. Costs associated with
implementation are deferred and recognized ratably over the life
of the arrangements.
Cash equivalents consist of demand deposit accounts, money
market mutual funds and commercial paper with original
maturities of 90 days or less, which are carried at market
value, which approximates cost. Cash equivalents totaled
$12.2 million and $24.8 million as of
December 31, 2005 and 2004, respectively.
During the third quarter of 2002, Corillian agreed to deposit
$1.0 million in cash in a corporate bank account with a
customer. This balance was classified as restricted cash as of
December 31, 2002, because Corillian was required to
maintain the funds on deposit and could not use the funds
without violating the agreement. During the second quarter of
2003, Corillian and the customer amended the terms of the
contract to remove the requirement that Corillian maintain the
funds on deposit with the customer. As a result, these funds
became classified as unrestricted during the second quarter of
2003.
|
|
| (f) |
Short-Term Investments |
Corillian’s short-term investments consist of taxable
government agency bonds with original maturities between 90 and
180 days and taxable municipal bonds, auction rate
securities, with original maturities of greater than one year.
Taxable government agency bonds are classified as
held-to-maturity, as
the Company has the intent and ability to hold these securities
to maturity. All
held-to-maturity
investments are recorded at amortized cost. Corillian classifies
taxable municipal bonds, auction rate securities, with
maturities greater than one year as short-term
available-for-sale securities and reports them at cost which
approximates market. Corillian views its auction rate securities
as short-term investments, even though the original maturity
dates are greater than one year, as they are bought and sold at
par every 28 to 35 days and therefore are available for use
in normal operations.
F-8
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The decline in the market value of any investment that is deemed
to be other-than-temporary results in a reduction in carrying
amount to fair value. The impairment charge is included in
earnings and a new cost basis for the security is established.
To determine whether impairment is other-than-temporary,
Corillian considers whether it has the ability and intent to
hold the investment until a market price recovery and considers
whether evidence indicating the cost of the investment is
recoverable outweighs evidence to the contrary. There have been
no impairments of
held-to-maturity or
available-for-sale securities identified or recorded by
Corillian and no securities have been in an unrealized loss
position for an extended period of time.
The specific identification method is used to determine the cost
of securities sold. Premiums and discounts on
held-to-maturity
investments are amortized or accreted over the life of the
related security as an adjustment to yield using a method that
approximates the effective-interest method. Dividend and
interest income is recognized when earned. Unrealized holding
gains and losses have not been material to date. Realized gains
on available-for-sale securities are included in interest and
other income in Corillian’s statement of operations.
|
|
| (g) |
Goodwill and Intangible Assets |
Goodwill and intangible assets are accounted for in accordance
with Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible
Assets. Corillian performed its annual goodwill impairment
analysis during the fourth quarter of fiscal year 2005 and
identified no impairment. To determine whether or not goodwill
was impaired, a test was performed comparing the book value of
the “reporting unit” to its trading price. Statement
No. 142 requires purchased intangible assets, other than
goodwill, to be amortized over their estimated useful lives,
unless an asset has an indefinite life. Purchased intangible
assets with definite useful lives are carried at cost less
accumulated amortization. Amortization expense is recognized
over the estimated useful lives, which range from one to six
years.
In accordance with the provisions of Statement No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, management reviews Corillian’s long-lived
assets and definite-lived intangible assets for impairment when
events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable. Recoverability of
long-lived assets is determined by comparing the forecasted
undiscounted net cash flows of the asset or asset group to the
carrying amount of the asset or asset group. If the operation is
determined to be unable to recover the carrying amount of its
assets, the assets or asset groups are written down to their
estimated fair value. Fair value is determined based on
discounted cash flows or appraised values, depending upon the
nature of the assets.
|
|
| (i) |
Investment in Joint Venture |
Investments in businesses in which Corillian owns less than a
50% interest and can exert significant influence over are
accounted for using the equity method of investment accounting.
EITF 03-16,
Accounting for Investments in Limited Liability
Companies, requires that investments in limited partnerships
be accounted for using the equity method when the percentage of
ownership is greater than 5%. Accordingly, Corillian accounts
for its investment in Synoran LLC using the equity method of
accounting. Under the equity method, Corillian records an
investment in the stock at cost, and adjusts the carrying amount
of the investment to recognize its share of the earnings or
losses of the business after the date of investment based on its
ownership percentage of the business as a whole.
On June 9, 2000, Corillian entered into an operating
agreement with Huntington Bancshares Incorporated, Compaq
Computer Corporation and SAIC Venture Capital Corporation, a
division of Science Applications International Corporation to
form e-Banc, LLC, a
Delaware limited liability company. On February 12, 2004,
e-Banc changed its name
to “Synoran LLC.” The business of Synoran is to
develop,
F-9
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
produce and market solutions that enable financial institutions
to collect and coordinate their data from all delivery channels
including tellers, ATM’s, web banking sites, among others,
on a real time basis, using existing financial institution
legacy systems as well as new channel applications.
Pursuant to the agreement, Corillian contributed
$3.0 million in cash in 2000. Corillian’s ownership
percentage of Synoran as of December 31, 2005, was 12.3%.
Corillian has one representative on Synoran’s board of
managers. Corillian invested an additional $1.0 million in
cash in Synoran during 2003. During the years ended
December 31, 2005, 2004 and 2003, Corillian recorded
$128,000, $813,000 and $1.1 million, respectively, of
losses related to its investment in Synoran. As of
December 31, 2005, Corillian did not have a remaining
investment balance in Synoran. Corillian does not have an
obligation to further fund Synoran and has ceased applying the
equity method.
Trade accounts receivable are recorded at invoiced amount and do
not bear interest. Corillian performs ongoing credit evaluations
of its customers’ financial condition. Credit is extended
to customers as deemed necessary and generally does not require
collateral. Management believes that the risk of loss is
significantly reduced due to the quality and financial position
of its customers. Management provides an allowance for doubtful
accounts based on current customer information and historical
statistics. The allowance for doubtful accounts is
Corillian’s best estimate of the amount of probable credit
losses in its existing accounts receivable. Account balances are
charged off against the allowance after all means of collection
have been exhausted and the potential for recovery is considered
remote. Corillian does not have any off-balance-sheet credit
exposure related to its customers. At December 31, 2005 and
2004, Corillian’s allowance for doubtful accounts
receivable was $100,000 and $101,000, respectively.
The following table summarizes the activity in the allowance for
doubtful accounts (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
Beginning allowance balance
|
|
$ |
101 |
|
|
$ |
101 |
|
|
$ |
399 |
|
|
(Recovery) provision
|
|
|
(41 |
) |
|
|
(199 |
) |
|
|
(173 |
) |
|
Charge-offs
|
|
|
40 |
|
|
|
199 |
|
|
|
(125 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Ending allowance balance
|
|
$ |
100 |
|
|
$ |
101 |
|
|
$ |
101 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| (k) |
Property and Equipment |
Property and equipment are stated at cost and depreciated using
the straight-line method over the estimated useful life of the
assets, generally three to five years. Equipment recorded under
capital lease agreements are depreciated over the shorter of the
estimated useful life of the equipment or the lease term.
Leasehold improvements are depreciated over the shorter of the
remaining term of the related leases or the estimated economic
useful lives of the improvements. Repairs and maintenance are
expensed as incurred.
|
|
| (l) |
Research and Development |
Research and development costs are expensed as incurred.
Corillian accounts for software development costs in accordance
with Statement No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed.
Software development costs are capitalized beginning when a
product’s technological feasibility has been established by
completion of a working model of the product and ending when a
product is available for general release to customers.
F-10
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Completion of a working model of Corillian’s products and
general release has substantially coincided. As a result,
Corillian has not capitalized any software development costs
during the three-year period ended December 31, 2005 and
charged all such costs to research and development expense as
incurred.
Internal use software development costs are accounted for in
accordance with SOP No. 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use.
Costs incurred in the preliminary project stage are expensed as
incurred and costs incurred in the application development stage
are capitalized and amortized on a straight-line basis over the
estimated life of the asset. Capitalized internal use software
development costs have not been significant to date.
|
|
| (n) |
Concentration of Business and Credit Risk |
Results of operations are substantially derived from United
States operations and substantially all assets reside in the
United States. Banks and other financial institutions accounted
for a majority of Corillian’s revenues during the
three-year period ended December 31, 2005. A majority of
Corillian’s revenues are generated from the financial
services industry. Accordingly, Corillian’s near and
long-term prospects depend on its ability to attract the
technology expenditures of these companies. The market for
Internet-based financial services is intensely competitive and
rapidly changing. Additionally, the sale and implementation of
Corillian’s products and services are often subject to
delays because of Corillian’s customers’ internal
budgets and procedures for approving large capital expenditures
and deploying new technologies within their networks.
Corillian’s financial condition, results of operations and
liquidity could be materially affected if adverse conditions in
the industry developed, such as a reduction in technology
expenditures or a delay in the sales or implementation timeline.
An inability of Corillian to generate demand for its product,
whether as a result of competition, technological change,
economic, or other factors, could have a material adverse result
on Corillian’s financial condition, results of operations
or liquidity.
Corillian is exposed to concentration of credit risk principally
from accounts receivable and revenue in excess of billing. As of
December 31, 2005, one customer individually accounted for
18% of consolidated accounts receivable. As of December 31,
2004, four customers accounted for more than 10% of consolidated
accounts receivable. These customers, in total, accounted for
approximately 65% of Corillian’s consolidated accounts
receivable balance as of December 31, 2004.
Three customers individually accounted for more than 10% of
Corillian’s consolidated revenue in excess of billing
balance as of December 31, 2005. These customers accounted
for approximately 47% of Corillian’s consolidated revenue
in excess of billing balance as of December 31, 2005. One
customer individually accounted for more than 10% of
Corillian’s consolidated revenue in excess of billing
balance as of December 31, 2004. This customer accounted
for approximately 49% of Corillian’s consolidated revenue
in excess of billing balance as of December 31, 2004.
Corillian is also subject to concentrations of credit risk from
its cash, cash equivalents and short-term investments. Corillian
limits its exposure to credit risk associated with cash, cash
equivalents and short-term investments by placing its cash, cash
equivalents and short-term investments with major financial
institutions and by investing in investment-grade securities.
|
|
| (o) |
Risk of Technological Change |
A substantial portion of Corillian’s revenues are generated
from the development and rapid release to market of computer
software products and enhancements. In the extremely competitive
industry environment in which Corillian operates, such product
generation, development and marketing processes are uncertain
and complex, requiring accurate prediction of market trends and
demand as well as successful management of various risks
inherent in such products. Additionally, Corillian’s
production strategy relies on certain employees’ ability to
deliver implemented products in time to meet critical
development and distribution
F-11
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
schedules. In light of these dependencies, it is reasonably
possible that failure to successfully manage a significant
product introduction or failure of certain employees to deliver
implemented products as needed could have a severe impact on
Corillian’s growth, results of operations and liquidity.
|
|
| (p) |
Stock-Based Compensation |
At December 31, 2005, Corillian had various stock-based
compensation plans, including stock option plans and an employee
stock purchase plan, which are described more fully in
Notes 5 and 6. Corillian applies the intrinsic-value-based
method of accounting prescribed by Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations including FASB
Interpretation (FIN) No. 44, Accounting for Certain
Transactions involving Stock Compensation, an interpretation of
APB Opinion No. 25, to account for its fixed-plan stock
options. Under this method, compensation expense is generally
recorded on the date of grant if the current market price of the
underlying stock exceeded the exercise price. Statement
No. 123, Accounting for Stock-Based Compensation and
Statement No. 148, Accounting for Stock-Based
Compensation — Transition and Disclosure, an amendment
of FASB Statement No. 123, established accounting and
disclosure requirements using a fair-value-based method of
accounting for stock-based employee compensation plans. As
permitted by existing accounting standards, Corillian has
elected to continue to apply the intrinsic-value-based method of
accounting described above, and has adopted only the disclosure
requirements of Statement No. 123, as amended. Expense
associated with stock-based compensation is amortized on an
accelerated basis over the vesting period of the individual
stock option awards consistent with the method prescribed in
FIN No. 28.
The following table illustrates the effect on net income if the
fair-value-based method had been applied to all outstanding and
unvested awards in each period.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except for per share | |
| |
|
data) | |
|
Net income, as reported
|
|
$ |
2,653 |
|
|
$ |
10,480 |
|
|
$ |
5,126 |
|
|
Add: Stock-based compensation expense determined using the
intrinsic value method
|
|
|
— |
|
|
|
— |
|
|
|
35 |
|
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards
|
|
|
(4,138 |
) |
|
|
(2,980 |
) |
|
|
(3,717 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Pro forma net (loss) income
|
|
$ |
(1,485 |
) |
|
$ |
7,500 |
|
|
$ |
1,444 |
|
| |
|
|
|
|
|
|
|
|
|
|
Basic — as reported
|
|
$ |
0.06 |
|
|
$ |
0.28 |
|
|
$ |
0.14 |
|
|
Basic — pro forma
|
|
$ |
(0.04 |
) |
|
$ |
0.20 |
|
|
$ |
0.04 |
|
|
Diluted — as reported
|
|
$ |
0.06 |
|
|
$ |
0.26 |
|
|
$ |
0.14 |
|
|
Diluted — pro forma
|
|
$ |
(0.04 |
) |
|
$ |
0.19 |
|
|
$ |
0.04 |
|
Information related to the assumptions used in the above
calculations is further described in
Notes 5 and 6.
Corillian accounts for stock issued to non-employees in
accordance with the provisions of Statement No. 123 and
EITF 96-18, Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction
with Selling, Goods or Services.
On December 22, 2005, Corillian’s Board of Directors
approved the acceleration of vesting of those employee stock
options with an exercise price equal to or greater than $5.00.
The closing price of Corillian’s common stock as quoted on
December 22, 2005 was $2.80 per share. The
acceleration applied to all options outstanding as of
December 30, 2005 under Corillian’s 2000 Stock
Incentive Compensation Plan and 2003
F-12
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Nonqualified Stock Incentive Compensation Plan. Options to
purchase 354,218 shares of Corillian’s common
stock, or approximately 0.8% of Corillian’s total
outstanding options, with a weighted average exercise price of
$5.74 and varying remaining vesting schedules, became
immediately vested and exercisable on December 30, 2005. Of
these 354,218 options, 200,000 options are held by one Corillian
executive officer. No options held by Corillian’s directors
were impacted by the acceleration of vesting. Because the
affected options had exercise prices significantly in excess of
the current price per share of Corillian’s common stock,
the options have little or no incentive value. The vesting of
these options was accelerated to avoid the recognition of
expense with respect to these options under Financial Accounting
Standards Board Statement No. 123 (revised 2004),
Share-Based Payment (Statement No. 123(R)), which
Corillian has adopted effective January 1, 2006. Included
in the pro forma stock-based compensation expense for 2005 is
$1.2 million associated with the acceleration.
Corillian computes net income per share in accordance with
Statement No. 128, Earnings Per Share. Under the
provisions of Statement No. 128, basic net income per share
is computed by dividing the net income for the period by the
weighted-average number of shares of common stock outstanding
during the period. Diluted net income per share is computed by
dividing net income for the period by the weighted-average
number of shares of common stock and potential dilutive common
shares outstanding during the period.
The following is a reconciliation of basic and diluted
weighted-average shares:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Shares for basic net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Weighted-average common shares
|
|
|
41,039 |
|
|
|
37,727 |
|
|
|
36,431 |
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Stock options and employee stock purchase plan
|
|
|
1,107 |
|
|
|
2,747 |
|
|
|
1,382 |
|
| |
|
|
|
|
|
|
|
|
|
|
Shares for diluted net income per share:
|
|
|
42,146 |
|
|
|
40,474 |
|
|
|
37,813 |
|
| |
|
|
|
|
|
|
|
|
|
The following shares issuable under stock options and would not
result in additional dilutive shares under the treasury stock
method as they would be anti dilutive because their exercise
price was greater than the weighted average stock price for the
period:
| |
|
|
|
|
|
|
| |
|
Year Ended December 31, |
| |
|
|
| |
|
2005 |
|
2004 |
|
2003 |
| |
|
|
|
|
|
|
| |
|
(In thousands) |
|
Shares issuable under stock options
|
|
2,218 |
|
1,202 |
|
3,128 |
|
|
| (r) |
Comprehensive Income (Loss) |
Corillian has adopted the provisions of Statement No. 130,
Reporting on Comprehensive Income. Comprehensive income
(loss) is defined as changes in shareholders’ equity
exclusive of transactions with owners. To date, only foreign
currency translation adjustments have been reported in
comprehensive income (loss) for Corillian. All other amounts
have not been material to Corillian’s financial position or
results of operations.
F-13
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Corillian accounts for income taxes in accordance with Statement
No. 109, Accounting for Income Taxes. In accordance
with Statement No. 109, deferred tax assets and liabilities
are recognized for the future tax consequences of events that
have been included in the financial statements and tax returns.
Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are
expected to be recovered or settled. Valuation allowances are
established to reduce deferred tax assets to the amount expected
to be realized.
|
|
| (t) |
Fair Value of Financial Instruments |
The carrying amounts reported in the balance sheet for cash and
cash equivalents, short-term investments, accounts and notes
receivable, revenue in excess of billings, and accounts payable
approximate fair values due to the short-term nature of those
instruments. The carrying amount of long-term debt approximates
fair value as the stated interest rates approximate current
market rates. Fair value estimates are made at a specific point
in time, based on relevant market information about the
financial instruments when available. These estimates are
subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with
precision.
|
|
| (u) |
Recent Accounting Pronouncements |
On December 16, 2004, the Financial Accounting Standards
Board (FASB) issued Statement No. 123(R), Share-Based
Payment, which replaces Statement No. 123, supersedes
APB No. 25, Accounting for Stock Issued to
Employees, and amends Statement No. 95, Statement of
Cash Flow. Currently, Corillian uses the Black-Scholes model
for option expense calculation and presents pro forma disclosure
of the statements of operations effect in financial statement
footnotes only under APB No. 25. However, under Statement
No. 123(R), pro forma disclosure of the statements of
operations effects of share-based payments will no longer be an
alternative and all share-based payments to employees, including
grants of employee stock options, will be recognized in the
financial statements based on their fair values. In addition,
companies must also recognize compensation expense related to
any awards that are not fully vested as of the effective date.
Compensation expense for the unvested awards will be measured
based on the fair value of the awards previously calculated in
developing the pro forma disclosures in accordance with the
provisions of Statement No. 123. Statement No. 123(R)
is effective for public companies with annual periods that begin
after June 15, 2005. Corillian believes that the adoption
of Statement No. 123(R) will have a material impact on its
results of operations; however, Corillian is not able to
determine the full effect of the adoption as it is dependant
upon future grant activity, Corillian’s stock price, and
other variables.
In March 2005, the Securities and Exchange Commission released
Staff Accounting Bulletin (SAB) No. 107, to provide
guidance on Statement No. 123(R). SAB No. 107
provides the Staff’s view regarding the valuation of
share-based payment arrangements for public companies. In
particular, this SAB provides guidance related to share-based
payment transactions with non-employees, the transition from
non-public to public entity status, valuation methods (including
assumptions such as expected volatility and expected term), the
accounting for certain redeemable financial instruments issued
under share-based payment arrangements, the classification of
compensation expense, non-GAAP financial measures, first time
adoption of Statement No. 123(R), the modification of
employee share options prior to the adoption of Statement
No. 123(R) and disclosure in Management’s Discussion
and Analysis subsequent to adoption of Statement
No. 123(R). SAB No. 107 was effective
March 29, 2005. The adoption of SAB No. 107 is
expected to have a material impact on the Company’s
financial statements for the first quarter of 2006. Corillian
currently estimates that Statement No. 123(R) and
SAB No. 107 will reduce diluted net income per share
by approximately $0.06 to $0.10 per share for fiscal 2006
(unaudited).
F-14
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| (3) |
Balance Sheet Components |
|
|
| (a) |
Short-Term Investments |
Short-term investments consisted of the following at
December 31:
| |
|
|
|
|
|
|
|
|
| |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Available-for-sale
|
|
$ |
8,800 |
|
|
$ |
10,150 |
|
|
Held-to-maturity
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
| |
|
$ |
8,800 |
|
|
$ |
10,150 |
|
| |
|
|
|
|
|
|
No individual securities have been in an unrealized loss
position for more than ninety days.
|
|
| (b) |
Property and Equipment, Net |
Property and equipment, net, consisted of the following at
December 31:
| |
|
|
|
|
|
|
|
|
| |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Computer equipment and software
|
|
$ |
13,076 |
|
|
$ |
11,959 |
|
|
Furniture, fixtures and other equipment
|
|
|
2,758 |
|
|
|
2,909 |
|
|
Leashold improvements
|
|
|
3,850 |
|
|
|
3,830 |
|
| |
|
|
|
|
|
|
| |
|
|
19,684 |
|
|
|
18,698 |
|
|
Less accumulated depreciation and amortization
|
|
|
(16,136 |
) |
|
|
(14,898 |
) |
| |
|
|
|
|
|
|
| |
|
$ |
3,548 |
|
|
$ |
3,800 |
|
| |
|
|
|
|
|
|
Depreciation expense was $1.5 million, $2.2 million
and $3.7 million for the years ended December 31,
2005, 2004 and 2003, respectively. During 2004, Corillian
recognized a $491,000 impairment charge to write-off the
remaining book value of long-lived assets that it abandoned and
ceased to use. See Note 10.
Accrued liabilities consisted of the following at
December 31:
| |
|
|
|
|
|
|
|
|
| |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Payroll and related expenses
|
|
$ |
2,337 |
|
|
$ |
1,564 |
|
|
Other accrued liabilities
|
|
|
1,252 |
|
|
|
904 |
|
| |
|
|
|
|
|
|
| |
|
$ |
3,589 |
|
|
$ |
2,468 |
|
| |
|
|
|
|
|
|
Domestic and foreign pre-tax income is as follows for the year
ended December 31:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Domestic
|
|
$ |
2,192 |
|
|
$ |
9,942 |
|
|
$ |
5,034 |
|
|
Foreign
|
|
|
522 |
|
|
|
698 |
|
|
|
216 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
2,714 |
|
|
$ |
10,640 |
|
|
$ |
5,250 |
|
| |
|
|
|
|
|
|
|
|
|
F-15
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Corillian provided current federal and state tax expense of
$61,000, $160,000 and $124,000 for the years ended
December 31, 2005, 2004, and 2003.
The reconciliation of the statutory federal income tax rate to
Corillian’s effective income tax rate is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
Federal statutory rate
|
|
|
34.0 |
% |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
Decreases resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Utilization of net operating losses
|
|
|
(31.4 |
) |
|
|
(31.9 |
) |
|
|
(31.0 |
) |
| |
Other
|
|
|
(0.4 |
) |
|
|
(0.6 |
) |
|
|
(0.6 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
2.2 |
% |
|
|
1.5 |
% |
|
|
2.4 |
% |
| |
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences and net operating loss
carryforwards which give rise to the significant portions of
deferred tax assets and liabilities are as follow at
December 31:
| |
|
|
|
|
|
|
|
|
|
|
| |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
| |
Research and experimentation credit carryforwards
|
|
$ |
3,503 |
|
|
$ |
2,914 |
|
| |
Accrued expenses and allowances
|
|
|
765 |
|
|
|
414 |
|
| |
Deferred compensation
|
|
|
101 |
|
|
|
130 |
|
| |
Domestic net operating loss carryforwards
|
|
|
26,185 |
|
|
|
20,355 |
|
| |
Foreign net operating loss carryforwards
|
|
|
2,479 |
|
|
|
2,583 |
|
| |
Goodwill and intangibles
|
|
|
1,161 |
|
|
|
293 |
|
| |
Depreciable assets
|
|
|
1,074 |
|
|
|
1,128 |
|
| |
Alternative minimum tax credit carryforwards
|
|
|
254 |
|
|
|
198 |
|
| |
|
|
|
|
|
|
| |
|
Total gross deferred tax asset
|
|
|
35,522 |
|
|
|
28,015 |
|
|
Less valuation allowance
|
|
|
(34,007 |
) |
|
|
(27,799 |
) |
| |
|
|
|
|
|
|
| |
|
|
1,515 |
|
|
|
216 |
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
| |
Intangibles
|
|
|
1,485 |
|
|
|
— |
|
| |
Prepaid expenses
|
|
|
30 |
|
|
|
167 |
|
| |
Equity investments
|
|
|
— |
|
|
|
49 |
|
| |
|
|
|
|
|
|
| |
|
Total gross deferred tax liabilities
|
|
|
1,515 |
|
|
|
216 |
|
| |
|
|
|
|
|
|
| |
|
Net deferred tax assets
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
Corillian has established a valuation allowance for certain
deferred tax assets, including those for net operating loss and
tax credit carryforwards. Such a valuation allowance is recorded
when it is more likely than not that the deferred tax assets
will not be realized. This determination was based on an
evaluation of positive and negative factors, including
Corillian’s history of having net losses, losses in the
third and fourth quarter of 2005, future projections and
limitations on the use of net operating loss carryforwards. The
portion of the valuation allowance for deferred tax assets for
which subsequently recognized tax benefits will be applied
directly to contributed capital is approximately
$2.3 million and directly to goodwill is approximately
$6.7 million.
F-16
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The net change in the total valuation allowance was an increase
of approximately $6.2 million for the year ended
December 31, 2005 and a decrease of approximately
$2.8 million for the year ended December 31, 2004. The
increase in the valuation allowance in 2005 was primarily due to
the non-taxable stock acquisition of InteliData during 2005 as
Corillian recorded a valuation allowance on the acquired net
operating loss carryforwards. The decrease in the valuation
allowance during 2004 was primarily due to the utilization of
federal and state net operating losses.
At December 31, 2005, Corillian had federal and state net
operating loss carryforwards of approximately $68.8 million
and foreign net operating loss carryforwards of
$12.3 million to offset against future income.
Additionally, Corillian had alternative minimum tax credits of
approximately $254,000 and research and experimentation credits
of $3.9 million. These carryforwards expire between 2006
and 2025.
A provision of the Internal Revenue Code requires the
utilization of net operating losses and research and
experimentation credits to be limited when there is a change of
more than 50% in ownership of Corillian or its subsidiaries.
Such a change occurred with the acquisition of InteliData
Technologies, Inc. in August 2005. Accordingly, the utilization
of the InteliData net operating loss carryforwards is limited
and has been reduced from $218 million as of the
acquisition date to $17.5 million.
|
|
| (5) |
2000 Employee Stock Purchase Plan |
In March 2000, the Board of Directors approved the 2000 Employee
Stock Purchase Plan (the ESPP) that became effective upon
completion of Corillian’s initial public offering on
April 12, 2000. In 2005, 2004 and 2003 Corillian issued
393,460, 507,628 and 254,573 shares respectively, under the
ESPP. As of December 31, 2005, 57 shares were
available for issuance under the ESPP. The ESPP includes an
evergreen formula pursuant to which the number of shares
authorized for grant will be increased annually by the lesser of
(1) 333,333 shares, (2) an amount equal to two
percent of the average number of shares of common stock
outstanding on a fully diluted basis as of the end of our
immediately preceding fiscal year, and (3) a lesser amount
determined by our Board of Directors. In January 2006, an
additional 333,333 shares of common stock became available
for issuance under the ESPP pursuant to the evergreen formula.
Offering periods commence on February 1 and August 1 each
year and have a
24-month duration. Each
offering period consists of four consecutive purchase periods of
six months’ duration. Participants purchase common stock on
the last day of each purchase period. The purchase price is the
lesser of 85% of the fair market value of the common stock on
the first day of an offering period or 85% of the fair market
value of the common stock on the purchase date. If the fair
market value of Corillian’s common stock on any purchase
date of an offering period is less than the fair market value of
Corillian’s common stock on the first day of the offering
period, then every participant shall automatically (a) be
withdrawn from the offering period at the close of the purchase
date after the acquisition of the shares of Corillian’s
common stock for the purchase period and (b) be enrolled in
the offering period commencing on the first business date
subsequent to the purchase period.
Corillian updated prior year assumptions used in the Black
Scholes option pricing model surrounding the volatility and
risk-free interest rates that were not properly reflected in our
pro forma expense. The per share weighted-average fair value, as
determined by applying the valuation methodology prescribed in
FASB Technical Bulletin 97-1, Accounting under
Statement 123 for Certain Employee Stock Purchase Plans
with a
F-17
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Look-Back Option, to the ESPP in 2005, 2004 and 2003, was
$1.28, $1.47 and $0.47, respectively, using the following
assumptions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
Risk free interest rate
|
|
|
1.86-3.87 |
% |
|
|
0.99-2.64 |
% |
|
|
1.05-1.86 |
% |
|
Expected volatility
|
|
|
44-81 |
% |
|
|
66-106 |
% |
|
|
73-114 |
% |
|
Expected life in years
|
|
|
6-24 months |
|
|
|
6-24 months |
|
|
|
6-24 months |
|
|
Dividend yield
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
| (6) |
1997, 2000 and 2003 Stock Option Plans |
In 1997, Corillian’s Board of Directors approved and
adopted a Stock Option Plan (the 1997 Plan). Options granted
pursuant to the 1997 Plan may be either incentive stock options
or non-qualified stock options, at the discretion of the Board
of Directors. In March 2000, the Board of Directors approved an
amendment that capped the 1997 Plan at 3,453,193 shares,
which was the number of shares subject to options at that time.
Shares under the 1997 Plan generally vest in yearly installments
over a period of three or four years following the date of
grant. Options under the 1997 Plan generally expire five years
from the date of grant, and generally expire three months after
termination of employment with Corillian.
In March 2000, the Board of Directors approved the 2000 Stock
Incentive Compensation Plan (the 2000 Plan). Options granted
pursuant to the 2000 Plan may be either incentive stock options
or non-qualified stock options, at the discretion of the Board
of Directors. Shares under the 2000 Plan generally vest over a
period of four years following the date of grant. Options under
the 2000 Plan generally expire ten years from the date of grant,
and generally expire three months after termination of
employment with Corillian. As of December 31, 2005,
1,030,384 shares remained available for issuance under the
2000 Plan. The 2000 Plan includes an evergreen formula pursuant
to which the number of shares authorized for grant will be
increased annually by the lesser of
(1) 400,000 shares, and (2) an amount equal to
one percent of the average outstanding shares of the common
stock of the Company as of the end of the immediately preceding
fiscal year on a fully-diluted basis; plus any shares subject to
outstanding awards under Corillian’s 1997 Plan as of the
effective date of the 2000 Plan that cease to be subject to such
awards other than by reason of exercise or payment of such
awards. In January 2006, an additional 400,000 shares of
common stock became available for grant under the 2000 Plan
pursuant to the evergreen formula.
In May 2003, Corillian’s Board of Directors adopted the
2003 Nonqualified Stock Incentive Compensation Plan (the 2003
Plan) and authorized the issuance of 1,000,000 shares of
common stock under the 2003 Plan. The 2003 Plan was not approved
by Corillian’s shareholders. Shares under the 2003 Plan
generally vest over a period of four years following the date of
grant. Options under the 2003 Plan generally expire ten years
from the date of grant or three months after termination of
employment with Corillian. As of December 31, 2005,
251,562 shares remained available for issuance under the
2003 Plan.
F-18
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Stock option activity under the 1997, 2000 and 2003 Stock Option
Plans were as follows:
| |
|
|
|
|
|
|
|
|
| |
|
|
|
Weighted | |
| |
|
|
|
Average | |
| |
|
Number of | |
|
Exercise | |
| |
|
Shares | |
|
Price | |
| |
|
| |
|
| |
|
Balance December 31, 2002
|
|
|
3,885,196 |
|
|
$ |
4.69 |
|
|
Granted
|
|
|
4,279,750 |
|
|
|
2.24 |
|
|
Exercised
|
|
|
(490,058 |
) |
|
|
(2.28 |
) |
|
Cancelled
|
|
|
(1,072,640 |
) |
|
|
(3.30 |
) |
| |
|
|
|
|
|
|
|
Balance December 31, 2003
|
|
|
6,602,248 |
|
|
|
3.51 |
|
|
Granted
|
|
|
565,999 |
|
|
|
4.93 |
|
|
Exercised
|
|
|
(1,009,226 |
) |
|
|
1.95 |
|
|
Cancelled
|
|
|
(763,516 |
) |
|
|
3.11 |
|
| |
|
|
|
|
|
|
|
Balance December 31, 2004
|
|
|
5,395,505 |
|
|
|
4.01 |
|
|
Granted
|
|
|
1,856,250 |
|
|
|
3.09 |
|
|
Exercised
|
|
|
(333,958 |
) |
|
|
1.41 |
|
|
Cancelled
|
|
|
(542,468 |
) |
|
|
3.42 |
|
| |
|
|
|
|
|
|
|
Balance December 31, 2005
|
|
|
6,375,329 |
|
|
$ |
3.94 |
|
| |
|
|
|
|
|
|
The following table summarizes information regarding stock
options outstanding and exercisable as of December 31, 2005:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options Outstanding | |
|
Options Exercisable | |
| |
|
| |
|
| |
| |
|
|
|
Weighted | |
|
|
|
|
| |
|
|
|
Average | |
|
Weighted | |
|
|
|
Weighted | |
| |
|
|
|
Remaining | |
|
Average | |
|
Exercisable | |
|
Average | |
| |
|
Number of | |
|
Contractual | |
|
Exercise | |
|
Number of | |
|
Exercise | |
| Exercise Price |
|
Shares | |
|
Life | |
|
Price | |
|
Shares | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
$ 0.60 - 0.86
|
|
|
1,017,420 |
|
|
|
7.31 |
|
|
$ |
0.86 |
|
|
|
574,635 |
|
|
$ |
0.86 |
|
|
0.88 - 2.87
|
|
|
1,064,856 |
|
|
|
7.68 |
|
|
|
2.78 |
|
|
|
491,925 |
|
|
|
2.72 |
|
|
2.90 - 2.95
|
|
|
445,000 |
|
|
|
9.78 |
|
|
|
2.90 |
|
|
|
16,875 |
|
|
|
2.90 |
|
|
3.00 - 3.00
|
|
|
983,875 |
|
|
|
7.57 |
|
|
|
3.00 |
|
|
|
541,751 |
|
|
|
3.00 |
|
|
3.02 - 3.28
|
|
|
639,542 |
|
|
|
9.24 |
|
|
|
3.17 |
|
|
|
32,699 |
|
|
|
3.10 |
|
|
3.29 - 3.85
|
|
|
646,891 |
|
|
|
6.45 |
|
|
|
3.58 |
|
|
|
409,890 |
|
|
|
3.67 |
|
|
3.94 - 6.01
|
|
|
946,110 |
|
|
|
8.20 |
|
|
|
5.36 |
|
|
|
740,458 |
|
|
|
5.56 |
|
|
6.05 - 13.56
|
|
|
554,635 |
|
|
|
5.05 |
|
|
|
11.03 |
|
|
|
554,635 |
|
|
|
11.03 |
|
|
19.50 - 19.50
|
|
|
77,000 |
|
|
|
4.36 |
|
|
|
19.50 |
|
|
|
77,000 |
|
|
|
19.50 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.56 - 19.50
|
|
|
6,375,329 |
|
|
|
7.59 |
|
|
$ |
3.94 |
|
|
|
3,439,868 |
|
|
$ |
4.90 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corillian updated prior year assumptions used in the
Black-Scholes option pricing model surrounding the volatility
and risk-free interest rates that were not properly reflected in
our pro forma expense. The per share weighted average grant date
fair value, as reflected in Note 1, as determined by
applying the Black-Scholes option pricing model to stock options
granted under the 1997, 2000 and 2003 Stock Option Plans, was
$1.86,
F-19
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
$3.06 and $1.49 during the years ended December 31, 2005,
2004 and 2003, respectively, using the following
weighted-average assumptions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
| |
|
December 31, | |
| |
|
| |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
Risk free interest rate
|
|
|
4.12 |
% |
|
|
3.38 |
% |
|
|
2.71 |
% |
|
Expected volatility
|
|
|
79 |
% |
|
|
84 |
% |
|
|
92 |
% |
|
Expected life in years
|
|
|
4.00 |
|
|
|
3.92 |
|
|
|
4.00 |
|
|
Dividend yield
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
| (7) |
Commitments and Contingencies |
Corillian maintains a profit-sharing retirement plan for
eligible employees under the provisions of Internal Revenue Code
Section 401(k). Participants may defer their compensation
on a pre-tax basis, subject to annual maximum limits on
contributions set forth by the Internal Revenue Service.
Corillian’s contributions are equal to 50% of a
participant’s contribution, up to a maximum of 6% of each
participant’s annual compensation. Under this plan,
Corillian made contributions of approximately $502,000, $348,000
and $460,000 during the years ended December 31, 2005, 2004
and 2003, respectively.
Corillian is obligated under capital lease agreements for
computer and other equipment that expire over the next year.
Gross amounts of property and equipment and related accumulated
depreciation recorded under capital leases are as follows as of
December 31:
| |
|
|
|
|
|
|
|
|
| |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Computer and other equipment
|
|
$ |
34 |
|
|
$ |
34 |
|
|
Less accumulated depreciation
|
|
|
(34 |
) |
|
|
(34 |
) |
| |
|
|
|
|
|
|
| |
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
Corillian also has non-cancelable operating leases, which expire
over the next five years. These lease agreements generally
contain scheduled rent increases or escalations. Rental expense
under operating leases is recognized on a straight-line basis
over the lease term and was $2.7 million, $2.9 million
and $3.1 million for the years ended December 31,
2005, 2004 and 2003, respectively.
In September 2004, Corillian amended the lease for office space
at its corporate headquarters in Hillsboro, Oregon. This
amendment reduced the space leased effective January 1,
2005 to approximately 100,000 square feet, from
approximately 122,000 square feet previously leased. The
amendment also extended the lease expiration date to September
2010.
F-20
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Future minimum lease payments on operating and capital leases
are as follows:
| |
|
|
|
|
|
|
|
|
|
|
| |
|
Capital | |
|
Operating | |
| |
|
Leases | |
|
Leases | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Year ending December 31:
|
|
|
|
|
|
|
|
|
| |
2006
|
|
$ |
4 |
|
|
$ |
3,297 |
|
| |
2007
|
|
|
— |
|
|
|
2,444 |
|
| |
2008
|
|
|
— |
|
|
|
2,255 |
|
| |
2009
|
|
|
— |
|
|
|
2,305 |
|
| |
2010
|
|
|
— |
|
|
|
1,757 |
|
| |
|
|
|
|
|
|
| |
|
Total minimum lease payments
|
|
|
4 |
|
|
$ |
12,058 |
|
| |
|
|
|
|
|
|
|
Less amounts representing interest
|
|
|
(1 |
) |
|
|
|
|
| |
|
|
|
|
|
|
| |
|
Present value of minimum lease payments
|
|
|
3 |
|
|
|
|
|
|
Less current portion
|
|
|
3 |
|
|
|
|
|
| |
|
|
|
|
|
|
| |
|
Long-term portion of minimum lease payments
|
|
$ |
0 |
|
|
|
|
|
| |
|
|
|
|
|
|
The future minimum lease obligations do not include $452,000 of
expected receipts from subleases in 2006.
At December 31, 2005, Corillian had long-term contracts
with minimum commitments with four vendors that provide various
services. These contracts include minimum annual commitments as
follows (in thousands):
| |
|
|
|
|
|
|
|
Year ending December 31:
|
|
|
|
|
| |
2006
|
|
$ |
626 |
|
| |
2007
|
|
|
589 |
|
| |
2008
|
|
|
358 |
|
| |
2009
|
|
|
18 |
|
| |
2010
|
|
|
2 |
|
| |
|
|
|
| |
|
Total vendor commitments
|
|
$ |
1,593 |
|
| |
|
|
|
Payments made under these contracts amounted to approximately
$958,000, $595,000 and $445,000 for the years ended
December 31, 2005, 2004 and 2003, respectively.
|
|
| (c) |
Environmental liability |
In connection with the acquisition of InteliData, Corillian
assumed an environmental
clean-up liability
associated with prior tenants’ operations at
InteliData’s former New Milford, Connecticut property. In
January 2000, InteliData sold the property and the building. In
connection with the sale, InteliData agreed to undertake limited
remediation of the property in accordance with applicable state
and federal law. The property is not a listed federal or state
Superfund site and InteliData has not been named a
“potentially responsible party” at the property. The
remediation plan agreed to with the purchaser allowed InteliData
to use engineering and institutional controls (e.g., deed
restrictions) to minimize the extent and costs of the
remediation. Moreover, InteliData obtained environmental
insurance, which is now retained by Corillian, to pay for
remediation costs up to $6,600,000 in excess of a retained
exposure limit of $600,000. As of December 31, 2005, the
$600,000 deductible has been exhausted. At December 31,
2005, Corillian has approximately $572,000 recorded as estimated
undiscounted future liabilities, of which $280,000 is recorded as
F-21
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
a current liability, and has recorded a receivable of $872,000
due from its insurance provider, of which $589,000 is recorded
as a current asset. Corillian considers the collection of these
insurance recoveries to be probable. Corillian recorded these
amounts in accordance with SOP 96-1, Environmental
Remediation Liabilities, and as part of purchase accounting
in accordance with Statement No. 141, Business
Combinations. Due to the complexity of environmental laws
and regulations, the varying costs and effectiveness of
alternative clean-up methods and technologies, the uncertainty
of insurance coverage, and the unresolved extent of the
Corillian’s responsibility, it is difficult to determine
the ultimate outcome of these matters, however, any additional
liability is not expected to have a material adverse effect on
the Company’s financial position, results of operations, or
liquidity.
Corillian has engaged a legal firm and an environmental
specialist firm to represent it regarding this matter. The
timing of the ultimate resolution of this matter is uncertain.
In November 2000, Corillian obtained a $5.0 million
equipment line of credit with a financial institution. In June
2003, Corillian refinanced this line of credit to obtain lower
interest rates on its remaining debt with this financial
institution. As of December 31, 2004, approximately
$911,000 was outstanding under this line of credit and no
further amounts were available for borrowing. In February 2005,
Corillian paid off the remaining balance outstanding under the
amended line of credit.
In March 2005, Corillian entered into a new one-year revolving
line of credit facility with another financial institution that
allows Corillian to borrow up to $4.0 million to assist
with working capital needs. As of December 31, 2005,
Corillian had not drawn amounts from this line of credit. Under
this line of credit, Corillian must comply with affirmative
covenants that require it to maintain a specified tangible net
worth value, quick ratio, liabilities to tangible net worth
ratio and certain levels of net income.
Long-term debt was as follows as of December 31:
| |
|
|
|
|
|
|
|
|
| |
|
2005 |
|
2004 | |
| |
|
|
|
| |
| |
|
(In thousands) | |
|
Line of credit facility due January 2005 through June 2008 with
interest rates of 5.0 to 6.0% at December 31, 2004
|
|
$ |
— |
|
|
$ |
911 |
|
| |
|
|
|
|
|
|
| |
|
|
— |
|
|
|
911 |
|
|
Less current portion
|
|
|
— |
|
|
|
(286 |
) |
| |
|
|
|
|
|
|
| |
|
$ |
— |
|
|
$ |
625 |
|
| |
|
|
|
|
|
|
As of December 31, 2005, Corillian was in violation of the
net income requirements under its line of credit agreement.
Corillian obtained a waiver from its lender, dated
February 8, 2006, that waived the default rights with
respect to the breach for the period ending December 31,
2005. If Corillian is unable to amend the covenant requirements
of its existing line of credit or renegotiate new terms upon its
renewal, the impact of Statement No. 123(R) may result in
future covenant violations.
Corillian’s product license and services agreements include
a limited indemnification provision for claims from
third-parties relating to Corillian’s intellectual
property. Such indemnification provisions are accounted for in
accordance with Statement No. 5, Accounting for
Contingencies. The indemnification is limited to the amount
paid by the customer. To date, claims under such indemnification
provisions have not been significant.
F-22
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
On August 18, 2005, Corillian acquired InteliData
Technologies Corporation (InteliData). InteliData’s
products provide financial institutions with the real-time
financial processing infrastructure needed to provide their
customers with payment and presentment services and online
banking via the internet and other online delivery channels.
InteliData’s customers included banks, credit unions,
brokerage firms, financial institution processors and credit
card issuers. The acquisition was an investment aimed at
expanding Corillian’s product offering, customer base and
driving revenue growth which supports the premium paid over the
fair market value of individual assets. InteliData has
subsequently been renamed Corillian Payment Solutions, Inc.
Corillian acquired all of InteliData’s outstanding common
stock for $4.3 million in cash and 4,916,430 shares of
Corillian common stock plus merger related costs of
$0.2 million. The 4,916,430 shares issued were valued
at $3.38 per share, or $16.6 million in the aggregate,
based on the average closing price of our stock on the
announcement date and the two-day trading period before and
after the announcement of the signing of a material agreement,
which was March 31, 2005. The purchase price was allocated
to the underlying assets acquired and liabilities assumed based
on their estimated fair values. Analysis supporting the purchase
price allocation includes a valuation of assets and liabilities
as of the closing date, a third party valuation of intangible
assets and a detailed review of the opening balance sheet to
determine other significant adjustments required to recognize
assets and liabilities at fair value. The purchase price
allocation is subject to further changes.
The following table presents the total purchase price (in
thousands):
| |
|
|
|
|
|
|
Cash paid
|
|
$ |
4,301 |
|
|
Stock issued
|
|
|
16,618 |
|
|
Merger related transaction costs
|
|
|
242 |
|
| |
|
|
|
| |
Total purchase price
|
|
$ |
21,161 |
|
| |
|
|
|
The following table presents the preliminary allocation of the
purchase price to the assets acquired and liabilities assumed
based on their fair values (in thousands):
| |
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
34 |
|
|
Accounts receivable
|
|
|
1,325 |
|
|
Unbilled accounts receivable
|
|
|
335 |
|
|
Prepaid expense and other current assets
|
|
|
729 |
|
|
Property plant and equipment
|
|
|
166 |
|
|
Intangible assets
|
|
|
3,200 |
|
|
Goodwill(1)
|
|
|
21,892 |
|
|
Other long-term assets
|
|
|
458 |
|
|
Accounts payable and accrued liabilities(2)
|
|
|
(6,197 |
) |
|
Deferred revenue(3)
|
|
|
(489 |
) |
|
Other long-term liabilities
|
|
|
(292 |
) |
| |
|
|
|
| |
Total purchase price
|
|
$ |
21,161 |
|
| |
|
|
|
|
|
| (1) |
No amounts of goodwill are expected to be deductible for tax
purposes. |
| |
| (2) |
Includes $1.4 million of accrued employee termination costs
pursuant to EITF 95-03, Recognition of Liabilities in a
Purchase Business Combination. All amounts have been paid as
of December 31, 2005. |
F-23
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| (3) |
The fair value of deferred revenue represents an amount
equivalent to the estimated cost to fulfill the maintenance
obligations assumed associated with bug fixes and phone support
plus an appropriate profit margin. |
At the acquisition date, InteliData did not have any in-process
research and development as InteliData was in between major
product development cycles. Accordingly, Corillian did not
recognize any expense for in-process research and development in
its results of operations for the year ended December 31,
2005.
The following table presents the details of the intangible
assets purchased in the InteliData acquisition as of
December 31, 2005 (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Useful Life | |
|
Estimated Fair | |
|
Accumulated | |
|
|
| |
|
(In years) | |
|
Value | |
|
Amortization | |
|
Net | |
| |
|
| |
|
| |
|
| |
|
| |
|
Developed Technology
|
|
|
3 |
|
|
$ |
2,300 |
|
|
$ |
(282 |
) |
|
$ |
2,018 |
|
|
Bank Customer Relationships
|
|
|
6 |
|
|
|
900 |
|
|
|
(55 |
) |
|
|
845 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
$ |
3,200 |
|
|
$ |
(337 |
) |
|
$ |
2,863 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for intangible assets purchased in the
InteliData acquisition was approximately $337,000 for fiscal
2005 and has been recorded in the Condensed Consolidated
Statement of Operations as follows (in thousands):
| |
|
|
|
|
|
| |
|
2005 | |
| |
|
| |
|
Cost of revenues
|
|
$ |
282 |
|
|
Sales and marketing
|
|
|
55 |
|
| |
|
|
|
| |
Total
|
|
$ |
337 |
|
| |
|
|
|
The estimated amortization expense of intangible assets
purchased in the InteliData acquisition in future years will be
recorded in the Consolidated Statements of Operations as follows:
| |
|
|
|
|
| Fiscal Year |
|
Amount | |
| |
|
| |
| |
|
(In thousands) | |
|
2006
|
|
$ |
917 |
|
|
2007
|
|
|
917 |
|
|
2008
|
|
|
634 |
|
|
2009
|
|
|
150 |
|
|
2010
|
|
|
150 |
|
|
2011
|
|
|
95 |
|
| |
|
|
|
|
Total
|
|
$ |
2,863 |
|
| |
|
|
|
The Consolidated Statements of Operations include the results of
operations of InteliData since August 18, 2005. The
following unaudited pro forma consolidated results of operations
have been prepared as if the acquisition of InteliData had
occurred at January 1, 2004 (in thousands, except per share
data).
| |
|
|
|
|
|
|
|
|
|
| |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
| |
|
(Unaudited) | |
|
Net sales
|
|
$ |
55,586 |
|
|
$ |
63,916 |
|
|
Net (loss) income from continuing operations
|
|
|
(2,809 |
) |
|
|
2,405 |
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
| |
Continuing operations — basic
|
|
$ |
(0.06 |
) |
|
$ |
0.06 |
|
| |
Continuing operations — diluted
|
|
$ |
(0.06 |
) |
|
$ |
0.05 |
|
F-24
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The pro forma information is presented for informational
purposes only and is not necessarily indicative of the results
of operations that actually would have been achieved had the
acquisition been consummated as of that time, nor is it intended
to be a projection of future results.
On August 8, 2005, Corillian acquired qbt Systems, Inc.
(qbt), a provider of integration solutions, electronic funds
transfer networks and core data processors. qbt’s
MultiPoint product is an integration platform that allows
financial institutions to integrate their delivery channels and
account processing systems in one seamless network environment.
qbt’s technology provides a combination of flexibility,
reliability, throughput and security. The acquisition was aimed
at expanding Corillian’s product offering, increasing
revenue growth, and allows for a more seamless, real-time
integration to the many different systems in the industry today.
These factors, among others, support the premium paid over the
fair market value of individual assets.
Corillian acquired all of qbt’s outstanding common stock
for $3.2 million in cash and 649,785 shares of
Corillian common stock, of which 6,388 shares remain
issuable as of December 31, 2005, plus merger related costs
and assumed liabilities of $0.2 million. Total shares
issuable of 649,785 were valued at $3.20 per share, based
on Corillian’s closing stock price on the consummation
date, amounting to an aggregate value of $2.1 million. The
purchase price was allocated to the underlying assets acquired
and liabilities assumed based on their estimated fair values.
Analysis supporting the purchase price allocation includes a
valuation of assets and liabilities as of the closing date, a
third party valuation of intangible assets and a detailed review
of the opening balance sheet to determine other adjustments
required to recognize assets and liabilities at fair value. The
purchase price allocation is subject to further changes.
The following table presents the total purchase price (in
thousands):
| |
|
|
|
|
|
|
Cash paid
|
|
$ |
3,160 |
|
|
Stock consideration
|
|
|
2,059 |
|
|
Merger related transaction costs
|
|
|
131 |
|
|
Liabilities assumed
|
|
|
38 |
|
| |
|
|
|
| |
Total purchase price
|
|
$ |
5,388 |
|
| |
|
|
|
F-25
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table presents the preliminary allocation of the
purchase price to the assets acquired and liabilities assumed
based on their fair values (in thousands):
| |
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
141 |
|
|
Accounts receivable
|
|
|
59 |
|
|
Employee and other receivable
|
|
|
240 |
|
|
Unbilled accouts receivable
|
|
|
73 |
|
|
Property, plant, and equipment
|
|
|
21 |
|
|
Intangible assets
|
|
|
1,300 |
|
|
Goodwill(1)
|
|
|
5,007 |
|
|
Other assets
|
|
|
2 |
|
|
Accounts payable and accrued liabilities
|
|
|
(1,080 |
) |
|
Note Payable
|
|
|
(100 |
) |
|
Deferred revenue(2)
|
|
|
(100 |
) |
|
Long-term note payable
|
|
|
(175 |
) |
| |
|
|
|
| |
Total purchase price
|
|
$ |
5,388 |
|
| |
|
|
|
|
|
| (1) |
$640,000 of goodwill is expected to be deductible for tax
purposes. |
| |
| (2) |
The fair value of deferred revenue represents an amount
equivalent to the estimated cost to fulfill the maintenance
obligations assumed plus an appropriate profit margin. |
At the acquisition date, qbt did not have any in-process
research and development as qbt was in between major product
development cycles. Accordingly, Corillian did not recognize any
expense for in-process research and development in its results
of operations for the year ended December 31, 2005.
The following table presents the details of the intangible
assets purchased in the qbt acquisition as of December 31,
2005 (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Useful Life | |
|
Estimated Fair | |
|
Accumulated | |
|
|
| |
|
(In Years) | |
|
Value | |
|
Amortization | |
|
Net | |
| |
|
| |
|
| |
|
| |
|
| |
|
Developed Technology
|
|
|
2 |
|
|
$ |
900 |
|
|
$ |
(178 |
) |
|
$ |
722 |
|
|
Backlog
|
|
|
1 |
|
|
|
300 |
|
|
|
(119 |
) |
|
|
181 |
|
|
Customer Relationships
|
|
|
4 |
|
|
|
100 |
|
|
|
(10 |
) |
|
|
90 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
$ |
1,300 |
|
|
$ |
(307 |
) |
|
$ |
993 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for intangible assets purchased in the qbt
acquisition was approximately $307,000 for fiscal 2005 and has
been recorded in the Condensed Consolidated Statement of
Operations as follows (in thousands):
| |
|
|
|
|
|
| |
|
2005 | |
| |
|
| |
|
Cost of revenues
|
|
$ |
297 |
|
|
Sales and marketing
|
|
|
10 |
|
| |
|
|
|
| |
Total
|
|
$ |
307 |
|
| |
|
|
|
F-26
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The estimated amortization expense of intangible assets
purchased in the qbt acquisition in future years will be
recorded in the Consolidated Statements of Operations as follows:
| |
|
|
|
|
| Fiscal Year |
|
Amount | |
| |
|
| |
| |
|
(In thousands) | |
|
2006
|
|
$ |
657 |
|
|
2007
|
|
|
296 |
|
|
2008
|
|
|
25 |
|
|
2009
|
|
|
15 |
|
| |
|
|
|
|
Total
|
|
$ |
993 |
|
| |
|
|
|
The Condensed Consolidated Statements of Operations include the
results of operations of qbt since August 8, 2005. Pro
forma results of operations have not been presented because the
effect of this acquisition was not material to Corillian’s
results.
Prior to the acquisition, Corillian and qbt executed a Proof of
Concept whereby Corillian could sub-license and install a qbt
MultiPoint adapter at any two of Corillian’s customers. As
of the consummation date, Corillian did install one adapter for
a customer and all amounts owed related to the implementation
were paid in full in accordance with the terms of the agreement.
There was no settlement gain or loss associated with this
agreement.
Statement No. 131, Disclosures about Segments of an
Enterprise and Related Information, establishes standards
for reporting information related to operating segments in
annual financial statements and requires selected information
for those segments to be presented in interim financial reports
issued to shareholders. Statement No. 131 also establishes
standards for related disclosures about products and services
and geographic areas. Operating segments are defined as
components of an enterprise about which separate, discrete
financial information is available for evaluation by the chief
operating decision maker, or decision-making group, in making
decisions about how to allocate resources and assess
performance. Corillian’s chief operating decision maker, as
defined under Statement No. 131, is its chief executive
officer. Corillian operates in a single segment.
|
|
| (a) |
Geographic Information |
Results of operations are substantially derived from United
States operations and substantially all assets reside in the
United States. Corillian’s results of operations for the
years ended December 31, 2005, 2004 and 2003, include
approximately $5,000, $19,000 and $155,000, respectively, of
direct operating expenses related to Corillian’s
international operations.
Corillian generated revenues from international customers of
approximately $1.8 million for fiscal year 2005 and
$1.1 million for fiscal years 2004 and 2003, respectively.
Corillian pursues international sales primarily through
resellers and selective direct sales efforts. Domestic and
international revenues were 96% and 4% of total revenues for
fiscal year 2005 and 98% and 2% for fiscal years 2004 and 2003,
respectively.
Geographic information for fiscal years 2005, 2004, and 2003 are
presented below. Identifiable assets located in foreign
countries were not material at December 31, 2005, 2004, and
2003. Prior year international
F-27
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
revenues were updated to include revenues for all Corillian
customers with geographic locations outside of the United
States, as compared to revenues from Corillian’s
international operations presented in prior years.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Revenues from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
47,408 |
|
|
$ |
49,742 |
|
|
$ |
45,042 |
|
|
All foreign countries
|
|
|
1,812 |
|
|
|
1,052 |
|
|
|
1,090 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
49,220 |
|
|
$ |
50,794 |
|
|
$ |
46,132 |
|
| |
|
|
|
|
|
|
|
|
|
Revenues from Corillian’s major customers, accounting for
more than 10% of consolidated revenues in a particular year, are
as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Customer A
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
6,069 |
|
|
Customer B
|
|
|
5,056 |
|
|
|
9,739 |
|
|
|
6,743 |
|
|
Customer C
|
|
|
— |
|
|
|
5,160 |
|
|
|
— |
|
Corillian’s chief decision-maker monitors the revenue
streams of licenses and various services. There are many shared
expenses generated by the various revenue streams. Because
management believes that any allocation of the expenses to
multiple revenue streams would be impractical and arbitrary,
management has not historically made such allocations
internally. The chief decision-maker does, however, monitor
revenue streams at a more detailed level than those depicted in
the accompanying financial statements.
Revenues derived from Corillian’s licenses and services are
as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
License and professional services
|
|
$ |
32,781 |
|
|
$ |
35,803 |
|
|
$ |
35,195 |
|
|
Post-contractual support
|
|
|
13,089 |
|
|
|
11,352 |
|
|
|
8,771 |
|
|
Hosting
|
|
|
3,350 |
|
|
|
3,639 |
|
|
|
2,166 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
49,220 |
|
|
$ |
50,794 |
|
|
$ |
46,132 |
|
| |
|
|
|
|
|
|
|
|
|
In the third quarter of 2004, in accordance with Statement
No. 146, Accounting for Costs Associated with Exit or
Disposal Activities, and Statement No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets,Corillian recognized an impairment charge of $491,000
to write-off the remaining book value of long-lived assets in
the space Corillian has abandoned and ceased to use.
F-28
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| (11) |
Related Party Transactions |
In January 2001, Corillian extended a $300,000 short-term loan
to Alex P. Hart to assist him in purchasing a house in Portland,
Oregon while he was in the process of selling his house in
Bellevue, Washington and relocating to Portland to serve as
Corillian’s President. Mr. Hart is currently
Corillian’s Chief Executive Officer. The loan was
interest-free through February 2004 and is secured by all assets
of Mr. Hart. Beginning in March 2004 the loan began
accruing interest at four percent. As of December 31, 2005,
Mr. Hart has paid $240,000 of the principal amount of the
note, and $60,000 of the principal amount remains outstanding.
The outstanding principal balance is included in other
receivables on Corillian’s consolidated balance sheet at
December 31, 2005.
In connection with Ted Spooner’s departure as Chief
Executive Officer in October 2002, Corillian entered into an
agreement with Mr. Spooner that required Corillian to pay
Mr. Spooner a severance payment of approximately $600,000.
$300,000 of expense related to this severance agreement was
recognized as general and administrative expense during the
first quarter of 2003. The remaining $300,000 of expense related
to this severance agreement was recognized as general and
administrative expense during the fourth quarter of 2002. In
April 2003, Corillian paid the severance payment to
Mr. Spooner. Effective May 7, 2003, Mr. Spooner
was neither a director nor employee of Corillian.
On November 14, 2003, Steve Sipowicz stepped down as
Corillian’s Chief Financial Officer and Secretary.
Mr. Sipowicz served as Corillian’s financial advisor
for a six-month period following his departure.
Mr. Sipowicz received $100,000 as severance and
$2,000 per month during the period he served as financial
advisor. Corillian recorded a charge of $100,000 related to
Mr. Sipowicz’s severance agreement as general and
administrative expense during the third quarter of 2003. As of
May 14, 2004, Mr. Sipowicz was neither an employee nor
financial advisor of Corillian.
|
|
| (12) |
Quarterly Financial Information — Unaudited |
A summary of quarterly financial information follows (in
thousands, except per share data):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Quarter Ended 2005 | |
| |
|
| |
| |
|
March 31 | |
|
June 30 | |
|
September 30 | |
|
December 31 | |
| |
|
| |
|
| |
|
| |
|
| |
|
Total Revenues
|
|
$ |
11,236 |
|
|
$ |
12,287 |
|
|
$ |
11,937 |
|
|
$ |
13,760 |
|
|
Gross Profit
|
|
|
6,877 |
|
|
|
8,136 |
|
|
|
6,626 |
|
|
|
7,285 |
|
|
Income (loss) from operations
|
|
|
572 |
|
|
|
1,868 |
|
|
|
(308 |
) |
|
|
(276 |
) |
|
Net income (loss)
|
|
|
654 |
|
|
|
2,098 |
|
|
|
(60 |
) |
|
|
(39 |
) |
|
Basic net income (loss) per share
|
|
|
0.02 |
|
|
|
0.05 |
|
|
|
(0.00 |
) |
|
|
(0.00 |
) |
|
Diluted net income (loss) per share
|
|
|
0.02 |
|
|
|
0.05 |
|
|
|
(0.00 |
) |
|
|
(0.00 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Quarter Ended 2004 | |
| |
|
| |
| |
|
March 31 | |
|
June 30 | |
|
September 30 | |
|
December 31 | |
| |
|
| |
|
| |
|
| |
|
| |
|
Total Revenues
|
|
$ |
11,697 |
|
|
$ |
12,429 |
|
|
$ |
13,517 |
|
|
$ |
13,151 |
|
|
Gross Profit
|
|
|
6,687 |
|
|
|
7,644 |
|
|
|
9,018 |
|
|
|
8,996 |
|
|
Income from operations
|
|
|
2,045 |
|
|
|
2,561 |
|
|
|
3,214 |
(1) |
|
|
3,365 |
|
|
Net income
|
|
|
1,833 |
|
|
|
2,299 |
|
|
|
3,072 |
|
|
|
3,276 |
|
|
Basic net income per share
|
|
|
0.05 |
|
|
|
0.06 |
|
|
|
0.08 |
|
|
|
0.09 |
|
|
Diluted net income per share
|
|
|
0.05 |
|
|
|
0.06 |
|
|
|
0.08 |
|
|
|
0.08 |
|
The four quarters for net income (loss) per share may not add
for the year because of the different number of shares
outstanding during the year.
|
|
| (1) |
Corillian recorded an impairment charge of approximately $491
during the quarter ended September 30, 2004. |
F-29