Critical Path Reports Revised 2000 Financial Results

Apr 05, 2001, 01:00 ET from Critical Path, Inc.

    SAN FRANCISCO, April 5 /PRNewswire/ -- Critical Path, Inc. (Nasdaq: CPTH),
 a global provider of business-to-business Internet messaging infrastructure
 solutions, today announced restated financial results for its third quarter
 and revised results for its fourth quarter and full year ended December 31,
 2000.  On February 15, 2001, the Company provided estimates of the expected
 changes to its previously released third and fourth quarter results.  The
 extent of the final revisions is greater than originally estimated.  In
 addition, the Company has recorded non-cash impairment write downs aggregating
 approximately $1.3 billion related to the carrying value of goodwill and other
 intangible assets, investments and other deferred charges.  The Company's cash
 position of $216.5 million on December 31, 2000 was not affected by these
 adjustments.  The results released today are contained in the Company's Annual
 Report on Form 10-K, which was filed today with the Securities and Exchange
 Commission.
     "Today's announcement represents the result of an intensive investigation
 into the issues that led to the Company's financial results for 2000 being
 misstated.  I'm pleased with the decisive actions taken by the Company," said
 David Hayden, Critical Path's executive chairman.  "Since identifying the
 problem in late January, a special committee of the Board of Directors has
 undertaken a thorough investigation, and our independent accountants have
 completed an audit of our financial statements.  The findings of that
 investigation have been used in determining the financial statement
 adjustments and disclosures included in the Form 10-K that we filed today.  To
 ensure against a repeat of this problem we have instituted new policies and
 procedures, including those for approving and signing sales contracts."
     Hayden added, "The events of the past few quarters have done nothing to
 change these basic facts about our business:  1) the field of Internet-based
 communications is still large and expanding, especially in overseas markets;
 2) Critical Path maintains a leadership position in this field, with some of
 the best available technology out there; and 3) the employees of Critical Path
 involved in its core products are the best in the business."
     Revenue for the third quarter of 2000 was restated to $35.3 million, down
 $9.7 million from revenue of $45.0 million reported on October 19, 2000.  The
 net loss and net loss per share in the third quarter, excluding special
 charges, have been restated to $18.6 million and $0.30 per share, compared
 with a net loss and net loss per share, excluding special charges, of
 $8.7 million and $0.14 per share, reported previously.
     Revenue for the fourth quarter of 2000 was revised to $42.3 million, down
 $9.7 million from revenue of $52.0 million announced on January 18, 2001.  The
 total net loss and net loss per share for the quarter, excluding special
 charges, have been revised to $23.3 million and $0.33 per share, compared with
 a net loss and net loss per share, excluding special charges, of
 $11.5 million, or $0.16 per share, announced previously.
     Revenue for the full year 2000 was revised to $135.7 million, down
 $19.3 million from revenue of $155.0 million announced on January 18, 2001.
 The total net loss and net loss per share for the year, excluding special
 charges, was $78.9 million, or $1.31 per share, compared with the net loss and
 net loss per share, excluding special charges, of $57.2 million, or $0.95 per
 share, announced previously.
     According to Larry Reinhold, Critical Path's chief financial officer, the
 $19.3 million adjustment in fiscal 2000 revenue resulted from the following:
 
     * Approximately $6.3 million related to non-substantive software licensing
       transactions for which no revenue will be recognized;
 
     * Approximately $7.1 million related to software licensing transactions
       for which no revenue will be recognized, primarily as a result of
       reevaluating the judgment that management used in the application of
       accounting principles to these transactions; and approximately
       $5.9 million related to transactions, predominately software licensing,
       for which revenue was recognized in 2000 but for which it was determined
       that revenues should have been, or may be, recognized in a later period
       after 2000.
 
     "It is important to separate the first category of adjustments, which
 related to non-substantive transactions that had been identified by the
 Company prior to the February 15, 2001 press release, from the second
 category, which are the result of a rigorous evaluation of the contract
 documentation and the accounting principles that were applicable to these
 transactions," said Reinhold.
     In addition to the revised revenue and operating results, the Company
 recorded an impairment charge of approximately $1.3 billion to reduce
 goodwill, other intangible assets and deferred charges, and the Company
 increased its loss on investments to $23.6 million as of December 31, 2000.
 The impairment charge is predominately due to a evaluation of acquisitions
 made in 1999 and 2000 in light of current market conditions, the performance
 of those acquired entities relative to projections, the Company's net book
 value of assets being significantly in excess of its market capitalization,
 and the Company's lower projected operating results for 2001.  The loss on
 investments reflects the Company's evaluation of the current value of its
 investments in several private and public companies in light of prevailing
 market conditions.  As a result of these charges and other non-cash
 adjustments, the Company's revised loss for 2000, including special charges,
 is approximately $1.85 billion.
     Critical Path will hold a conference call at 2:00 PM Pacific Daylight Time
 today to discuss these results. There will be a live web broadcast available
 at www.vcall.com .  A replay of this call will be available at 5:00 PM (PDT)
 by dialing 888.266.2086, passcode 5139857.
 
     This press release contains forward-looking statements, including the
 Company's statements regarding the size and growth potential of the Internet-
 based communications markets and its position within that market.  These
 forward-looking statements involve a number of risks and uncertainties that
 could cause actual results to differ materially.  Specifically, the market for
 Internet-based communications may not grow at the rate expected by the
 Company, in which case the Company's business and financial results could be
 adversely affected.  Other risks and uncertainties related to the Company are
 described in the Company's Annual Report on Form 10-K filed with the
 Securities and Exchange Commission on the date hereof and in subsequent
 filings made with the Commission which are available at the Commission's web
 site www.sec.gov .
 
 
                                CRITICAL PATH, INC.
                   Condensed Consolidated Statement of Operations
                                    (Unaudited)
                      (In thousands, except per share amounts)
 
                                   Three Months Ended          Year Ended
                                  December    December  December      December
                                    31,          31,       31,           31,
                                   1999         2000      1999          2000
 
     Net revenues
       License                     $    -      $14,275    $     -      $51,607
       Service                      8,189       27,988     16,157       84,046
         Total net revenues         8,189       42,263     16,157      135,653
 
     Cost of net revenues
       License                          -          353          -        2,731
       Service                      6,676       22,955     16,505       73,109
       Amortization of purchased
        technology                      -        7,171          -       18,140
       Acquisition-related
        retention bonuses             390            -        520        1,040
       Stock-based expenses           631          329      4,532        1,586
       Impairment of long-lived
        assets                          -       25,315          -       25,315
         Total cost of net
          revenues                  7,697       56,123     21,557      121,921
 
     Gross profit (loss)              492      (13,860)    (5,400)      13,732
 
     Operating expenses
       Sales and marketing          5,051       19,050     13,811       66,125
       Research and development     2,978        7,633      7,682       31,022
       General and
        administrative              6,132        9,778     14,051       30,444
       Amortization of
        intangible assets          22,446      125,223     32,259      355,868
       Acquisition-related
        retention bonuses           3,017          894      3,587        8,294
       Stock-based expenses        21,216       18,118     46,460       47,151
       Acquired in-process
        research and development        -            -          -        3,700
       Employee severance
        expenses                        -            -          -        6,695
       Impairment of long-lived
        assets                          -    1,282,150          -    1,282,150
         Total operating
          expenses                 60,840    1,462,846    117,850    1,831,449
 
     Loss from operations         (60,348)  (1,476,706)  (123,250)  (1,817,717)
 
     Interest and other income,
      net                           1,987        2,110      7,061       12,970
     Interest expense                (341)      (5,200)      (752)     (15,948)
     Equity in net loss of joint
      venture                           -         (379)         -       (1,019)
     Minority interest in net
      income of consolidated
      subsidiary                        -         (123)         -         (649)
     Loss on investments                -      (23,589)         -      (23,589)
 
     Loss before income taxes     (58,702)  (1,503,887)  (116,941)  (1,845,952)
 
     Provision for income taxes       -         (2,180)       -         (6,513)
 
     Net Loss                    $(58,702) $(1,506,067) $(116,941) $(1,852,465)
 
     Net loss per share - basic
      and diluted                  $(1.41)     $(21.27)    $(3.93)     $(30.67)
 
     Weighted average shares -
      basic and diluted            41,712       70,820     29,770       60,399
 
     The following supplemental pro forma financial information presents the
     Company's condensed consolidated results of operations for the three- and
     twelve-month periods ended December 31, 1999 and 2000, excluding the
     impact of certain special charges consisting of (i) amortization of
     intangible assets associated with purchase business combinations, (ii)
     accruals for employee retention bonuses associated with purchase business
     combinations, (iii) stock-based compensation associated with outstanding
     options and warrants, (iv) in-process research and development associated
     with purchase business combinations, (v) severance expense associated
     with workforce reductions, and (vi) the write-down of certain equity
     investments and intangible assets. This supplemental presentation is for
     informational purposes, only, and is not intended to replace the
     condensed consolidated operating results prepared and presented in
     accordance with generally accepted accounting principles.
 
 
                                CRITICAL PATH, INC.
             Pro Forma Condensed Consolidated Statement of Operations
                             Excluding Special Charges
                                    (Unaudited)
                     (In thousands, except per share amounts)
 
                                        Three Months Ended      Year Ended
                                        December  December  December  December
                                           31,       31,       31,       31,
                                          1999      2000      1999      2000
 
     Net revenues
       License                           $    -   $14,275   $     -     $51,607
       Service                            8,189    27,988    16,263    84,046
          Total net revenues              8,189    42,263    16,263   135,653
 
     Cost of net revenues
       License                                -       353         -     2,731
       Service                            6,676    22,955    16,505    73,109
          Total cost of net revenues      6,676    23,308    16,505    75,840
 
     Gross profit (loss)                  1,513    18,955      (242)   59,813
 
     Operating expenses
       Sales and marketing                5,051    19,050    13,811    66,125
       Research and development           2,978     7,633     7,682    31,022
       General and administrative         6,132     9,778    14,051    30,444
          Total operating expenses       14,161    36,461    35,544   127,591
 
     Loss from operations               (12,648)  (17,506)  (35,786)  (67,778)
 
     Interest and other income
      (expense), net                      1,987     2,110     7,061    12,970
     Interest expense                      (325)   (5,200)     (688)  (15,884)
     Equity in net loss of joint
      venture                                 -      (379)        -    (1,019)
     Minority interest in net income
      of consolidated subsidiary              -      (123)        -      (649)
 
     Loss before income taxes           (10,986)  (21,098)  (29,413)  (72,360)
 
     Provision for income taxes               -    (2,180)        -    (6,513)
 
     Net Loss                          $(10,986) $(23,278) $(29,413) $(78,873)
 
     Net loss per share - basic and
      diluted                            $(0.26)   $(0.33)   $(0.99)   $(1.31)
 
     Weighted average shares - basic
      and diluted                        41,712    70,820    29,770    60,399
 
 
                                CRITICAL PATH, INC.
                       Condensed Consolidated Balance Sheet
                                    (Unaudited)
                                  (In thousands)
 
                                                 December 31,      December 31,
                                                    1999              2000
     ASSETS
     Current assets
        Cash and cash equivalents                   $75,932          $216,542
        Restricted cash                                 325               215
        Accounts receivable, net                     10,147            38,938
        Other current assets                         40,800            10,252
           Total current assets                     127,204           265,947
 
        Investments                                  18,426            10,610
        Notes receivable from officers                  669             2,702
        Property and equipment, net                  52,517            85,304
        Intangible assets, net                      474,297            77,339
        Other assets                                    692             8,953
           Total assets                            $673,805          $450,855
 
     LIABILITIES AND SHAREHOLDERS' EQUITY
     Current liabilities
        Accounts payable                            $35,621           $43,710
        Accrued expenses                              7,120            10,377
        Deferred revenue                              1,818            15,720
        Capital lease and other
         obligations, current                         6,585             9,363
           Total current liabilities                 51,144            79,170
 
     Convertible subordinated notes payable               -           300,000
     Capital lease and other obligations, long-term   5,669             4,687
           Total liabilities                         56,813           383,857
 
     Commitments and contingencies
     Minority interest in consolidated subsidiary         -               649
 
     Shareholders' Equity                           616,992            66,349
 
     Total liabilities and shareholders' equity    $673,805          $450,855
 
 

SOURCE Critical Path, Inc.
    SAN FRANCISCO, April 5 /PRNewswire/ -- Critical Path, Inc. (Nasdaq: CPTH),
 a global provider of business-to-business Internet messaging infrastructure
 solutions, today announced restated financial results for its third quarter
 and revised results for its fourth quarter and full year ended December 31,
 2000.  On February 15, 2001, the Company provided estimates of the expected
 changes to its previously released third and fourth quarter results.  The
 extent of the final revisions is greater than originally estimated.  In
 addition, the Company has recorded non-cash impairment write downs aggregating
 approximately $1.3 billion related to the carrying value of goodwill and other
 intangible assets, investments and other deferred charges.  The Company's cash
 position of $216.5 million on December 31, 2000 was not affected by these
 adjustments.  The results released today are contained in the Company's Annual
 Report on Form 10-K, which was filed today with the Securities and Exchange
 Commission.
     "Today's announcement represents the result of an intensive investigation
 into the issues that led to the Company's financial results for 2000 being
 misstated.  I'm pleased with the decisive actions taken by the Company," said
 David Hayden, Critical Path's executive chairman.  "Since identifying the
 problem in late January, a special committee of the Board of Directors has
 undertaken a thorough investigation, and our independent accountants have
 completed an audit of our financial statements.  The findings of that
 investigation have been used in determining the financial statement
 adjustments and disclosures included in the Form 10-K that we filed today.  To
 ensure against a repeat of this problem we have instituted new policies and
 procedures, including those for approving and signing sales contracts."
     Hayden added, "The events of the past few quarters have done nothing to
 change these basic facts about our business:  1) the field of Internet-based
 communications is still large and expanding, especially in overseas markets;
 2) Critical Path maintains a leadership position in this field, with some of
 the best available technology out there; and 3) the employees of Critical Path
 involved in its core products are the best in the business."
     Revenue for the third quarter of 2000 was restated to $35.3 million, down
 $9.7 million from revenue of $45.0 million reported on October 19, 2000.  The
 net loss and net loss per share in the third quarter, excluding special
 charges, have been restated to $18.6 million and $0.30 per share, compared
 with a net loss and net loss per share, excluding special charges, of
 $8.7 million and $0.14 per share, reported previously.
     Revenue for the fourth quarter of 2000 was revised to $42.3 million, down
 $9.7 million from revenue of $52.0 million announced on January 18, 2001.  The
 total net loss and net loss per share for the quarter, excluding special
 charges, have been revised to $23.3 million and $0.33 per share, compared with
 a net loss and net loss per share, excluding special charges, of
 $11.5 million, or $0.16 per share, announced previously.
     Revenue for the full year 2000 was revised to $135.7 million, down
 $19.3 million from revenue of $155.0 million announced on January 18, 2001.
 The total net loss and net loss per share for the year, excluding special
 charges, was $78.9 million, or $1.31 per share, compared with the net loss and
 net loss per share, excluding special charges, of $57.2 million, or $0.95 per
 share, announced previously.
     According to Larry Reinhold, Critical Path's chief financial officer, the
 $19.3 million adjustment in fiscal 2000 revenue resulted from the following:
 
     * Approximately $6.3 million related to non-substantive software licensing
       transactions for which no revenue will be recognized;
 
     * Approximately $7.1 million related to software licensing transactions
       for which no revenue will be recognized, primarily as a result of
       reevaluating the judgment that management used in the application of
       accounting principles to these transactions; and approximately
       $5.9 million related to transactions, predominately software licensing,
       for which revenue was recognized in 2000 but for which it was determined
       that revenues should have been, or may be, recognized in a later period
       after 2000.
 
     "It is important to separate the first category of adjustments, which
 related to non-substantive transactions that had been identified by the
 Company prior to the February 15, 2001 press release, from the second
 category, which are the result of a rigorous evaluation of the contract
 documentation and the accounting principles that were applicable to these
 transactions," said Reinhold.
     In addition to the revised revenue and operating results, the Company
 recorded an impairment charge of approximately $1.3 billion to reduce
 goodwill, other intangible assets and deferred charges, and the Company
 increased its loss on investments to $23.6 million as of December 31, 2000.
 The impairment charge is predominately due to a evaluation of acquisitions
 made in 1999 and 2000 in light of current market conditions, the performance
 of those acquired entities relative to projections, the Company's net book
 value of assets being significantly in excess of its market capitalization,
 and the Company's lower projected operating results for 2001.  The loss on
 investments reflects the Company's evaluation of the current value of its
 investments in several private and public companies in light of prevailing
 market conditions.  As a result of these charges and other non-cash
 adjustments, the Company's revised loss for 2000, including special charges,
 is approximately $1.85 billion.
     Critical Path will hold a conference call at 2:00 PM Pacific Daylight Time
 today to discuss these results. There will be a live web broadcast available
 at www.vcall.com .  A replay of this call will be available at 5:00 PM (PDT)
 by dialing 888.266.2086, passcode 5139857.
 
     This press release contains forward-looking statements, including the
 Company's statements regarding the size and growth potential of the Internet-
 based communications markets and its position within that market.  These
 forward-looking statements involve a number of risks and uncertainties that
 could cause actual results to differ materially.  Specifically, the market for
 Internet-based communications may not grow at the rate expected by the
 Company, in which case the Company's business and financial results could be
 adversely affected.  Other risks and uncertainties related to the Company are
 described in the Company's Annual Report on Form 10-K filed with the
 Securities and Exchange Commission on the date hereof and in subsequent
 filings made with the Commission which are available at the Commission's web
 site www.sec.gov .
 
 
                                CRITICAL PATH, INC.
                   Condensed Consolidated Statement of Operations
                                    (Unaudited)
                      (In thousands, except per share amounts)
 
                                   Three Months Ended          Year Ended
                                  December    December  December      December
                                    31,          31,       31,           31,
                                   1999         2000      1999          2000
 
     Net revenues
       License                     $    -      $14,275    $     -      $51,607
       Service                      8,189       27,988     16,157       84,046
         Total net revenues         8,189       42,263     16,157      135,653
 
     Cost of net revenues
       License                          -          353          -        2,731
       Service                      6,676       22,955     16,505       73,109
       Amortization of purchased
        technology                      -        7,171          -       18,140
       Acquisition-related
        retention bonuses             390            -        520        1,040
       Stock-based expenses           631          329      4,532        1,586
       Impairment of long-lived
        assets                          -       25,315          -       25,315
         Total cost of net
          revenues                  7,697       56,123     21,557      121,921
 
     Gross profit (loss)              492      (13,860)    (5,400)      13,732
 
     Operating expenses
       Sales and marketing          5,051       19,050     13,811       66,125
       Research and development     2,978        7,633      7,682       31,022
       General and
        administrative              6,132        9,778     14,051       30,444
       Amortization of
        intangible assets          22,446      125,223     32,259      355,868
       Acquisition-related
        retention bonuses           3,017          894      3,587        8,294
       Stock-based expenses        21,216       18,118     46,460       47,151
       Acquired in-process
        research and development        -            -          -        3,700
       Employee severance
        expenses                        -            -          -        6,695
       Impairment of long-lived
        assets                          -    1,282,150          -    1,282,150
         Total operating
          expenses                 60,840    1,462,846    117,850    1,831,449
 
     Loss from operations         (60,348)  (1,476,706)  (123,250)  (1,817,717)
 
     Interest and other income,
      net                           1,987        2,110      7,061       12,970
     Interest expense                (341)      (5,200)      (752)     (15,948)
     Equity in net loss of joint
      venture                           -         (379)         -       (1,019)
     Minority interest in net
      income of consolidated
      subsidiary                        -         (123)         -         (649)
     Loss on investments                -      (23,589)         -      (23,589)
 
     Loss before income taxes     (58,702)  (1,503,887)  (116,941)  (1,845,952)
 
     Provision for income taxes       -         (2,180)       -         (6,513)
 
     Net Loss                    $(58,702) $(1,506,067) $(116,941) $(1,852,465)
 
     Net loss per share - basic
      and diluted                  $(1.41)     $(21.27)    $(3.93)     $(30.67)
 
     Weighted average shares -
      basic and diluted            41,712       70,820     29,770       60,399
 
     The following supplemental pro forma financial information presents the
     Company's condensed consolidated results of operations for the three- and
     twelve-month periods ended December 31, 1999 and 2000, excluding the
     impact of certain special charges consisting of (i) amortization of
     intangible assets associated with purchase business combinations, (ii)
     accruals for employee retention bonuses associated with purchase business
     combinations, (iii) stock-based compensation associated with outstanding
     options and warrants, (iv) in-process research and development associated
     with purchase business combinations, (v) severance expense associated
     with workforce reductions, and (vi) the write-down of certain equity
     investments and intangible assets. This supplemental presentation is for
     informational purposes, only, and is not intended to replace the
     condensed consolidated operating results prepared and presented in
     accordance with generally accepted accounting principles.
 
 
                                CRITICAL PATH, INC.
             Pro Forma Condensed Consolidated Statement of Operations
                             Excluding Special Charges
                                    (Unaudited)
                     (In thousands, except per share amounts)
 
                                        Three Months Ended      Year Ended
                                        December  December  December  December
                                           31,       31,       31,       31,
                                          1999      2000      1999      2000
 
     Net revenues
       License                           $    -   $14,275   $     -     $51,607
       Service                            8,189    27,988    16,263    84,046
          Total net revenues              8,189    42,263    16,263   135,653
 
     Cost of net revenues
       License                                -       353         -     2,731
       Service                            6,676    22,955    16,505    73,109
          Total cost of net revenues      6,676    23,308    16,505    75,840
 
     Gross profit (loss)                  1,513    18,955      (242)   59,813
 
     Operating expenses
       Sales and marketing                5,051    19,050    13,811    66,125
       Research and development           2,978     7,633     7,682    31,022
       General and administrative         6,132     9,778    14,051    30,444
          Total operating expenses       14,161    36,461    35,544   127,591
 
     Loss from operations               (12,648)  (17,506)  (35,786)  (67,778)
 
     Interest and other income
      (expense), net                      1,987     2,110     7,061    12,970
     Interest expense                      (325)   (5,200)     (688)  (15,884)
     Equity in net loss of joint
      venture                                 -      (379)        -    (1,019)
     Minority interest in net income
      of consolidated subsidiary              -      (123)        -      (649)
 
     Loss before income taxes           (10,986)  (21,098)  (29,413)  (72,360)
 
     Provision for income taxes               -    (2,180)        -    (6,513)
 
     Net Loss                          $(10,986) $(23,278) $(29,413) $(78,873)
 
     Net loss per share - basic and
      diluted                            $(0.26)   $(0.33)   $(0.99)   $(1.31)
 
     Weighted average shares - basic
      and diluted                        41,712    70,820    29,770    60,399
 
 
                                CRITICAL PATH, INC.
                       Condensed Consolidated Balance Sheet
                                    (Unaudited)
                                  (In thousands)
 
                                                 December 31,      December 31,
                                                    1999              2000
     ASSETS
     Current assets
        Cash and cash equivalents                   $75,932          $216,542
        Restricted cash                                 325               215
        Accounts receivable, net                     10,147            38,938
        Other current assets                         40,800            10,252
           Total current assets                     127,204           265,947
 
        Investments                                  18,426            10,610
        Notes receivable from officers                  669             2,702
        Property and equipment, net                  52,517            85,304
        Intangible assets, net                      474,297            77,339
        Other assets                                    692             8,953
           Total assets                            $673,805          $450,855
 
     LIABILITIES AND SHAREHOLDERS' EQUITY
     Current liabilities
        Accounts payable                            $35,621           $43,710
        Accrued expenses                              7,120            10,377
        Deferred revenue                              1,818            15,720
        Capital lease and other
         obligations, current                         6,585             9,363
           Total current liabilities                 51,144            79,170
 
     Convertible subordinated notes payable               -           300,000
     Capital lease and other obligations, long-term   5,669             4,687
           Total liabilities                         56,813           383,857
 
     Commitments and contingencies
     Minority interest in consolidated subsidiary         -               649
 
     Shareholders' Equity                           616,992            66,349
 
     Total liabilities and shareholders' equity    $673,805          $450,855
 
 SOURCE  Critical Path, Inc.