Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. WEBSENSE INC (1098277) 10-Q published on May 03, 2013 at 10:12 am
Reporting Period: Mar 30, 2013
For the three months ended March 31, 2013, we recognized an income tax benefit of $0.3 million compared with an income tax expense of $11.7 million for the three months ended March 31, 2012. The effective tax rates were (12.0)% for the three months ended March 31, 2013 and 118.7% for the three months ended March 31, 2012. For the first quarter of 2013, the effective tax rate variance from the U.S. federal statutory rate was primarily related to the favorable impact from earnings in lower tax rate jurisdictions, the reversal of various reserves for uncertain tax positions for tax years 2005 through 2007 due to the expiration of the federal statute of limitations for those years, and the recognition of the federal research and development tax credit due to the retroactive extension of these provisions by the American Taxpayer Relief Act of 2012 in the first quarter of 2013. These benefits were offset in part by the unfavorable impact of foreign withholding taxes and non-deductible share-based payments. For the first quarter of 2012, the effective tax rate variance from the U.S. federal statutory rate was primarily related to a discrete tax provision of $8.8 million resulting from an agreement with the IRS Appeals Office to settle certain outstanding tax matters for tax years 2005 through 2007, as well as the unfavorable impact of foreign withholding taxes and non-deductible share-based payments, partially offset by the unfavorable impact of earnings in lower tax rate jurisdictions.
Capital Resources. Our cash and cash equivalents totaled $83.7 million and $64.6 million as of March 31, 2013 and December 31, 2012, respectively, and our retained earnings totaled $93.4 million and $90.6 million as of March 31, 2013 and December 31, 2012, respectively. Of our total cash and cash equivalents, the cash held by our foreign subsidiaries was $41.9 million and $27.8 million, as of March 31, 2013 and December 31, 2012, respectively, and we plan to indefinitely reinvest the undistributed foreign earnings into our foreign operations. During the first three months of 2013, we primarily used cash in excess of cash required for operations to repurchase $5.1 million of our common stock, of which $0.1 million was purchased during the fourth quarter of 2012 in a transaction that settled in the first quarter of 2013.
We depend significantly upon our internal sales force to generate sales leads and assist in the sale of products through the reseller network. Our ability to grow our revenues from sales of TRITON solutions to new and renewing customers depends on our ability to effectively expand our sales operations and on the success of our sales team in executing on new customer opportunities while upgrading our renewing customer base to TRITON solutions with higher subscription values. In order to execute successfully on our strategy, we have to recruit, train and retain qualified sales personnel who can sell our sophisticated security solutions in organizations with complex information technology infrastructures. Beginning in the fourth quarter of 2012 and continuing through the first quarter of 2013, we increased headcount in our sales force. New sales personnel typically require substantial training and time before they are able to achieve maximum productivity and they may not become as productive as quickly as we anticipate. Our failure to recruit, effectively train or retain sales personnel may adversely affect our sales to new customers and our sales for renewals and upgrades within our existing customer base. In addition, if we fail to efficiently expand our sales force, the resulting increase in revenues may not justify the initial and recurring costs associated with such expansion, harming our operating results.
The global economy has experienced periods of significant volatility characterized by the bankruptcy, failure, collapse or sale of various financial institutions and the intervention from governments and regulatory agencies worldwide. Economic turmoil and financial distress have in the past resulted in, and may in the future result in, customers choosing shorter contract durations for our subscriptions, reducing the number of seats under subscription or not renewing contracts at all. These trends, most recently in Europe, negatively impact the duration and scope of contract renewals and, in some cases, result in customer losses. Credit markets may also adversely affect our resellers through whom our distributors distribute products and limit the credit value-added resellers may extend to their customers. The volatility of currency exchange rates can also significantly affect sales of our products denominated in foreign currencies. In addition, events in the global financial markets may make it difficult for us to access the credit markets or to obtain additional financing or refinancing, if needed, on satisfactory terms or at all.
We operate our Cloud offerings and hybrid service offerings from third-party data center hosting facilities located in the United States and other countries. The hosting services provided by these facilities may be damaged or interrupted due to natural disasters, fires, power loss, telecommunications failures and similar events. These hosting facilities and their network infrastructures are also subject to physical or electronic intrusions, cyber threats, sabotage, intentional acts of vandalism and other misconduct. The occurrence of a natural disaster, a cyber-attack, a decision to close the facilities without adequate notice, or other unanticipated problems could interrupt our services for an extended period of time. Impairment of, or interruptions in, our services may diminish the quality of our products and user experience, cause us to issue service credits to customers, subject us to potential liability and cause the loss of current and potential subscribers.