SAN DIEGO, CA, Sep. 15, 2009 (Marketwire) --
SAN DIEGO, CA -- (Marketwire) -- 09/15/09 -- Websense, Inc. (NASDAQ: WBSN) today announced it will correct its revenue recognition policy relating to its original equipment manufacturer (OEM) arrangements. The change affects the timing of royalty revenue recognized over a period of seven quarters from October 2007 through June 2009. The new policy is expected to decrease revenue recognized during the seven quarter period by an aggregate of $12.0 million to $16.0 million, or $8.0 million to $12.0 million, depending upon which of two potential revised accounting treatments is applied by the company, and increase deferred revenue as of June 30, 2009 by the same amount as the applicable decrease in recognized revenue. This change will not affect the company's fundamental business operations and does not affect billings, cash flow from operations, or the total amount of revenue that ultimately will be recognized on these OEM arrangements. These arrangements were acquired in connection with the company's purchase of SurfControl plc in October 2007. The company has been recognizing the royalty revenue consistent with the manner in which SurfControl recognized royalty revenue prior to its acquisition.
"We have always been committed to providing accurate, timely and transparent information to our stockholders," said Gene Hodges, Websense chief executive officer. "These accounting changes impact the timing of revenue recognition for a relatively small part of our total revenue and deferred revenue and have no impact on our fundamental outlook or our financial strength. We discovered this issue as a part of an examination of our OEM arrangements and as soon as we determined the need to revise our accounting policies, we made the information available to our stockholders."
As a result of this change, the company's financial statements for the fiscal years ended December 31, 2007 and 2008 and for the fiscal quarters ended March 31, 2008, June 30, 2008, September 30, 2008, March 31, 2009 and June 30, 2009 should no longer be relied upon. Similarly, the reports of the company's independent registered public accounting firm, Ernst & Young, related to these financial statements and to the effectiveness of the company's internal control over financial reporting for the related periods also should no longer be relied upon.
Under the revised royalty revenue recognition policy, the company will recognize royalty revenue ratably over a period of time specified under the terms of the OEM arrangements based on resale schedules provided by OEM partners. The company is currently considering two methods of recognizing the royalty revenue: (i) a Contract Term Method whereby the company recognizes the royalty revenue ratably over a period of time equal to the greater of the company's contractual obligations to its OEM partners or the specific subscription period for end customers under the OEM arrangements, and (ii) a Subscription Method whereby the company recognizes the royalty revenue ratably over the subscription term the OEM partner enters into with the end customer.
