EX-99.1 3 dex991.htm PRESS RELEASE Press Release
 
EXHIBIT 99.1
 
FOR IMMEDIATE RELEASE
 
Contact:
Marc Brailov
MicroStrategy Incorporated
(703) 770-1670
(703) 407-9884 (Cell)
mbrailov@microstrategy.com
 
MicroStrategy Sustains Profitability in Q3 2002
 
Marks Third Consecutive Quarter of GAAP Profitability;
Fourth Consecutive Quarter of Pro Forma Profitability
 
MCLEAN, Va., October 24, 2002—MicroStrategy® Incorporated (NASDAQ: MSTR), a leading worldwide provider of business intelligence software, today announced its financial results for the three-month period ended September 30, 2002 (the third quarter of its 2002 fiscal year), reporting both GAAP and pro forma profitability. This marked MicroStrategy’s third consecutive quarter of GAAP profitability and its fourth consecutive quarter of pro forma profitability.
 
Third quarter 2002 revenues were $33.4 million versus $36.8 million in the second quarter of 2002 and $41.4 million in the third quarter of 2001. Net income attributable to common stockholders for the third quarter of 2002, determined in accordance with Generally Accepted Accounting Principles (GAAP), was $37.4 million, or $0.18 per share on a diluted basis. Pro forma net income for the third quarter of 2002 was $1.0 million, or $0.08 per share on a diluted basis. Pro forma net income excludes restructuring and impairment charges, amortization of goodwill and intangible assets, loss on investments, amortization of the discount on notes payable, gains totaling $40.8 million attributable to the refinancing of MicroStrategy’s series B, C, and D preferred stock and the partial extinguishment of notes payable, and other non-recurring items. A reconciliation of GAAP to pro forma earnings is included in the attached financial exhibits.
 
“We’re pleased to report that we have once again achieved profitability, particularly during the challenging summer quarter,” said MicroStrategy President and CFO Eric Brown. “We also made significant improvements to our balance sheet through a preferred stock refinancing and maintained positive operating cash flow. We also generated $5.3 million in pro forma EBITDA for the third quarter and $19.0 million for the three quarters completed to date.”
 
“MicroStrategy has made remarkable progress strengthening itself financially during the last two years,” said MicroStrategy Chairman and CEO Michael J. Saylor. “We’re confident about our future and are expanding our sales force. We’re building on our technological leadership by enhancing our award-winning business intelligence platform with the latest release of MicroStrategy 7i, which has new features for financial reporting. Our impressive roster of customer deals this quarter demonstrates that we continue to win major business with leading companies and organizations worldwide.”

1

 
Highlights from Q3 2002
 
Signed Agreements with 21 Systems Integrators and OEMs (Original Equipment Manufacturers)
 
New partners include: Angoss Software Corporation, Asquare Global, LLC, AutomationOne, Inc., Born Information Services, Diversified Systems, Inc., e-Bank, LLC, General Technology, Inc., Honovi Solutions Inc., QuantiSense, Inc., Solution Builders, StrategyEdu, LLC and Weingartner Consulting.
 
Added 110 New Customers
 
New Customers and New Deals with Existing Customers in Q3 2002 Included:
 
AdvancePCS, AmerisourceBergen, Alticor, Bull Moose Tube Company, Centers for Medicare and Medicaid Services, Cole National Corporation, Deutsche Lufthansa AG, El Corte Inglés, Federal Highway Administration, Garden Ridge, Interacciona, Katz Group, KeyBank, Liz Claiborne, Mixx Ltd., Nationwide Insurance, Pfizer, PPL Corporation, Prescription Solutions, RxWEST, Scottish Widows, Serpro, Siemens Business Services, Solucient, Thomas Cook AG, United States Department of Education, United States Postal Service, Universal Music Group, Verizon, Yamanouchi, Inc. and Zomax Incorporated.
 
Examples of Noteworthy Customer Deals from Q3 2002:
 
Liz Claiborne Inc.
Liz Claiborne Inc., a leading marketer and designer of apparel and accessories for women and men, purchased MicroStrategy software and services in the third quarter of 2002 to extend its business intelligence capabilities to over 200 employees within its wholesale division. With MicroStrategy technology, company employees will have the ability to dynamically examine retail sales information pertaining to product and classification performance, SKU level analysis, account/store performance and geographic analysis. This application will allow Liz Claiborne to refine future product lines, product assortments and retail account forecasts, and thereby improve customer intimacy.
 
AdvancePCS
In the third quarter of 2002, AdvancePCS, the nation’s largest provider of health improvement services, expanded its agreement with MicroStrategy for products and services that will enhance extranet applications for clients. AdvancePCS serves more than 75 million health plan members (approximately 1 in 4 Americans), links to nearly 60,000 pharmacies and manages $28 billion annually in health care expenditures.
 
Cole National Corporation
Cole National Corporation, a leading retailer of optical services with over 1,700 locations throughout North America and the Caribbean, purchased MicroStrategy software and services in the third quarter of 2002 to extend its business intelligence applications across the corporation. The application will enable the merchandising, finance, and field employees to perform detailed sales analysis over the web.
 
Solucient
Solucient, a leading provider of data-intensive, Internet-based tools in the health care field, licensed MicroStrategy software in 2002 to update and enhance Solucient’s suite of marketing and planning products. MicroStrategy enabled Solucient to meet both the product’s functional requirements and its very aggressive time-to-market objectives. Moreover, MicroStrategy was able to manage extremely large data sets—terabytes—which are characteristic of Solucient applications. The Company also provided strong analytic capabilities and a sophisticated web development API which allowed it to be integrated with other applications.
 
Serpro
Serpro, Brazil’s Federal Government IT Agency, renewed its commitment with MicroStrategy by purchasing additional software and services in the third quarter of 2002 in order to better service its customers. With MicroStrategy’s Web-based platform, Serpro’s customers (federal government organizations), with more than 800 end users, are able to access its several data warehouses with ease, and

2

use the MicroStrategy platform to support decision-making at various strategic, tactical and operational levels within the organization. With MicroStrategy technology, Serpro expects to increase productivity, improve customer service and reduce costs.
 
Verizon
In the third quarter of 2002, Verizon purchased additional licenses from MicroStrategy to expand the reach of its MicroStrategy-based business intelligence application. End users of Verizon’s Network Metrics Portal will use MicroStrategy technology to analyze the information contained in its data warehouse in order to make better business decisions. Verizon Communications is one of the world’s leading providers of communications services.
 
MicroStrategy Further Expands the Capabilities of its Industrial-Strength Business Intelligence Platform
 
Earlier this year, MicroStrategy released its new, significantly enhanced version of its business intelligence software platform, MicroStrategy 7i. Winning high praise from customers and leading industry analysts alike, MicroStrategy 7i represents a technological breakthrough for the industry as it is the first truly integrated, 100-percent Web-based platform that puts a wide range of user functionality into a single business intelligence technology.
 
In the third quarter, MicroStrategy further expanded the capabilities of its business intelligence platform with the latest release of MicroStrategy 7i (7.2.1). Addressing the urgent industry need for transparent financial tracking and reporting, this latest release is designed specifically to meet the demanding new requirements for financial reporting and analysis imposed on business by new government mandates with highly sophisticated, yet easy-to-use features. These new features allow fast deployment of Web-based financial reporting systems—companies can deploy an operational system within 90-120 days rather than the usual 6-12 months. While other accounting systems provide only rudimentary reporting functionality, lack analytic breadth, and cannot provide interactive data analysis to a wide population of users, MicroStrategy 7i can drill down to the full depths of transactional data and perform automated fraud and anomaly detection.
 
MicroStrategy 7i can report on data contained in SAP, Oracle, J.D. Edwards, PeopleSoft, and Baan financial systems, as well as data in custom-developed financial applications, providing greater transparency without expensive modifications to these installed financial applications.
 
Finance Commentary
 
As previously announced, on August 6, 2002, the Company closed a refinancing transaction with all the holders of its Series B, Series C, and Series D preferred stock. This refinancing resulted in the elimination of approximately $13 million in preferred stock dividends that would otherwise have been due over the next 2 years. The refinancing resulted in a $36.1 million GAAP gain in Q3 2002; this gain has been excluded from the Q3 2002 pro forma results. As of October 24, 2002, all $21.0 million stated value of the Series F preferred stock issued in connection with this refinancing transaction has been converted into an aggregate of 1,397,174 shares of common stock.
 
On July 30, 2002, the Company effected a one-for-ten reverse stock split of its Class A Common Stock and Class B Common Stock. All references to shares and per share amounts are stated on a post-split basis.

3

 
Outlook and Financial Guidance Information
 
The following statements are subject to risks and uncertainties described at the end of this press release. Management guidance for 2002 supersedes any previously announced guidance as to the Company’s expectations for financial results for 2002.
 
Management offers the following guidance for the consolidated continuing operations of MicroStrategy, for the quarter ending December 31, 2002:
 
Revenue is expected to be in the range of approximately $35 to $39 million. Pro forma results of operations, excluding special items, are expected to range from breakeven to a profit of $2 million. Pro forma earnings per share, excluding special items and assuming a diluted weighted average share count, is expected to range from approximately breakeven to $0.15 per share. Average share count in the quarter using the diluted weighted average share count method is expected to be 13 to 14 million.
 
Management offers the following guidance for the full year 2003, which supersedes any previously announced guidance as to the Company’s expectations for financial results for 2003:
 
Consolidated revenue is expected to be in the range of $150 to $160 million. License revenue for 2003 is expected to increase by approximately 15% versus 2002. Pro forma results of operations, excluding special items, are expected to be a profit in the range of $15 to $20 million. Pro forma earnings per share, excluding special items and assuming a diluted weighted average share count of 14 to 15 million shares, is expected to range from approximately $1.00 to $1.40 per share. The Company expects to be profitable, on a pro forma basis, in each quarter of 2003. The Company also expects to have positive operating cash flow in each quarter of 2003.
 
About MicroStrategy Incorporated
 
Leadership in a Critical Market:    Founded in 1989, MicroStrategy is a worldwide leader in the increasingly critical business intelligence software market. Large and small companies alike are harnessing MicroStrategy’s business intelligence software to gain vital insights from their data to help them proactively enhance cost-efficiency, productivity and customer relations and optimize revenue-generating strategies. MicroStrategy’s business intelligence platform offers exceptional capabilities that provide organizations—in virtually all facets of their operations—with user-friendly solutions to their data query, reporting, and advanced analytical needs, and distributes valuable insight on this data to users via Web, wireless, and voice. PC Magazine selected MicroStrategy 7™ as the 2001 “Editors’ Choice” for business intelligence software.
 
Enterprise-Class Business Intelligence:    MicroStrategy 7i™ is a truly integrated, enterprise-class, Web-based business intelligence platform. With MicroStrategy 7i, enterprises can now standardize on one business intelligence platform and deploy high-value business intelligence enterprise-wide. MicroStrategy 7i’s configurable query, reporting, and OLAP Web interface is designed to support all users, from casual report viewers to power analysts.
 
Diverse Customer Base:    MicroStrategy’s customer base cuts across industry and sector lines, with over 1,700 enterprise-class customers, including Lowe’s Home Improvement Warehouse, AT&T Wireless Group, Wachovia and GlaxoSmithKline. MicroStrategy also has relationships with over 400 systems integrators and application development and platform partners, including IBM, PeopleSoft, Hewlett-Packard, and JD Edwards.
 
MicroStrategy is listed on Nasdaq under the symbol MSTR. For more information on the Company, or to purchase or demo MicroStrategy’s software, please visit MicroStrategy’s Web site at http://www.microstrategy.com.
 
MicroStrategy, MicroStrategy Business Intelligence Platform, Scalable Business Intelligence Platform Built for the Internet, and MicroStrategy 7i are either trademarks or registered trademarks of MicroStrategy Incorporated in the United States and certain other countries. Other product and company names mentioned herein may be the trademarks of their respective owners.

4

 
This press release may include statements that may constitute “forward- looking statements,” including its estimates of future business prospects or financial results and statements containing the words “believe,” “estimate,” “project,” “expect” or similar expressions. Forward-looking statements inherently involve risks and uncertainties that could cause actual results of MicroStrategy Incorporated and its subsidiaries (collectively, the “Company”) to differ materially from the forward-looking statements. Factors that could contribute to such differences include: the Company’s ability to secure financing for its current operations and long-term plans on acceptable terms; the ability of the Company to implement and achieve widespread customer acceptance of its MicroStrategy 7i software on a timely basis; the Company’s ability to recognize deferred revenue through delivery of products or satisfactory performance of services; the Company’s ability to effect the sale of non-core assets on reasonable terms; continued acceptance of the Company’s products in the marketplace; the timing of significant orders; delays in the Company’s ability to develop or ship new products; market acceptance of new products; competitive factors; general economic conditions; currency fluctuations; and other risks detailed in the Company’s registration statements and periodic reports filed with the Securities and Exchange Commission. By making these forward-looking statements, the Company undertakes no obligation to update these statements for revisions or changes after the date of this release.

5

MICROSTRATEGY INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
 
    
Three Months Ended September 30,
     
Nine Months Ended September 30,
  
    
2002
     
2001(1)
     
2002
     
2001(1)
  
    
(unaudited)
     
(as adjusted)
     
(unaudited)
     
(as adjusted)
  
Revenues
                                    
Product licenses
   
$
12,869
 
   
$
15,160
 
   
$
42,399
 
   
$
54,074
 
Product support and other services
   
 
20,500
 
   
 
26,269
 
   
 
63,459
 
   
 
84,327
 
    
  
  
  
Total revenues
   
 
33,369
 
   
 
41,429
 
   
 
105,858
 
   
 
138,401
 
    
  
  
  
Cost of Revenues
                                    
Product licenses
   
 
991
 
   
 
1,145
 
   
 
2,084
 
   
 
3,014
 
Product support and other services
   
 
5,727
 
   
 
9,560
 
   
 
18,853
 
   
 
35,843
 
    
  
  
  
Total cost of revenues
   
 
6,718
 
   
 
10,705
 
   
 
20,937
 
   
 
38,857
 
    
  
  
  
Gross profit
   
 
26,651
 
   
 
30,724
 
   
 
84,921
 
   
 
99,544
 
    
  
  
  
Operating Expenses
                                    
Sales and marketing
   
 
11,148
 
   
 
15,588
 
   
 
35,029
 
   
 
62,621
 
Research and development
   
 
6,245
 
   
 
8,141
 
   
 
18,446
 
   
 
26,447
 
General and administrative
   
 
6,490
 
   
 
8,871
 
   
 
20,064
 
   
 
31,258
 
Restructuring and impairment charges
   
 
370
 
   
 
2,977
 
   
 
2,764
 
   
 
26,399
 
Amortization of goodwill and intangible assets
   
 
856
 
   
 
4,248
 
   
 
2,683
 
   
 
12,746
 
    
  
  
  
Total operating expenses
   
 
25,109
 
   
 
39,825
 
   
 
78,986
 
   
 
159,471
 
    
  
  
  
Income (loss) from operations
   
 
1,542
 
   
 
(9,101
)
   
 
5,935
 
   
 
(59,927
)
Financing and Other Income (Expense)
                                    
Interest income
   
 
200
 
   
 
605
 
   
 
609
 
   
 
1,913
 
Interest expense (Note 2)
   
 
(2,772
)
   
 
(1,794
)
   
 
(6,050
)
   
 
(3,565
)
Loss on investments
   
 
(29
)
   
 
(922
)
   
 
(523
)
   
 
(2,252
)
Reduction in estimated cost of litigation settlement
   
 
—  
 
   
 
7,046
 
   
 
11,396
 
   
 
41,652
 
Gain on contract termination
   
 
—  
 
   
 
—  
 
   
 
16,837
 
   
 
—  
 
Gain on early extinguishment of notes payable
   
 
4,661
 
   
 
—  
 
   
 
4,661
 
   
 
—  
 
Other income (expense), net
   
 
(300
)
   
 
(923
)
   
 
1,753
 
   
 
(1,432
)
    
  
  
  
Total financing and other income
   
 
1,760
 
   
 
4,012
 
   
 
28,683
 
   
 
36,316
 
    
  
  
  
Income (loss) from continuing operations before income taxes
   
 
3,302
 
   
 
(5,089
)
   
 
34,618
 
   
 
(23,611
)
Provision for income taxes
   
 
312
 
   
 
1,003
 
   
 
1,131
 
   
 
1,340
 
    
  
  
  
Net income (loss) from continuing operations
   
 
2,990
 
   
 
(6,092
)
   
 
33,487
 
   
 
(24,951
)
    
  
  
  
Discontinued Operations
                                    
Income (loss) from discontinued operations
   
 
—  
 
   
 
93
 
   
 
—  
 
   
 
(34,917
)
    
  
  
  
Net income (loss)
   
 
2,990
 
   
 
(5,999
)
   
 
33,487
 
   
 
(59,868
)
    
  
  
  
Dividends, accretion, and beneficial conversion feature on convertible preferred stock
   
 
(1,751
)
   
 
(2,789
)
   
 
(6,874
)
   
 
(7,311
)
Net gain on refinancing of series A redeemable convertible preferred stock
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
29,370
 
Net gain on refinancing of series B, C and D convertible preferred stock
   
 
36,135
 
   
 
—  
 
   
 
36,135
 
   
 
—  
 
Gain on early redemption of redeemable convertible preferred stock of discontinued operations
   
 
—  
 
   
 
44,923
 
   
 
—  
 
   
 
44,923
 
    
  
  
  
Net income attributable to common stockholders
   
$
37,374
 
   
$
36,135
 
   
$
62,748
 
   
$
7,114
 
    
  
  
  
Basic earnings (loss) per share
                                    
Continuing operations
   
$
0.19
 
   
$
3.78
 
   
$
2.96
 
   
$
1.91
 
Discontinued operations
   
$
—
 
   
$
0.01
 
   
$
—
 
   
$
(3.97
)
    
  
  
  
Net income (loss) attributable to common stockholders
   
$
0.19
 
   
$
3.79
 
   
$
2.96
 
   
$
(2.06
)
    
  
  
  
Basic weighted average shares outstanding
   
 
11,959
 
   
 
9,694
 
   
 
11,036
 
   
 
8,787
 
    
  
  
  
Diluted earnings (loss) per share
                                    
Continuing operations
   
$
0.18
 
   
$
3.70
 
   
$
2.88
 
   
$
1.91
 
Discontinued operations
   
$
—
 
   
$
0.01
 
   
$
—
 
   
$
(3.97
)
    
  
  
  
Net income (loss) attributable to common stockholders
   
$
0.18
 
   
$
3.71
 
   
$
2.88
 
   
$
(2.06
)
    
  
  
  
Diluted weighted average shares outstanding
   
 
12,629
 
   
 
9,910
 
   
 
11,368
 
   
 
8,787
 
    
  
  
  
 
(1)
 
On July 30, 2002, the Company’s Board of Directors approved a reverse stock split of the Company's common stock at a ratio of one-for-ten. All references to common share and per common share amounts for all prior periods presented have been retroactively restated to reflect this reverse split. Additionally, all prior periods presented have been reclassified to present Strategy.com as a discontinued operation.
(2)
 
Interest expense for the three and nine months ended September 30, 2002 includes discount amortization expense on notes payable of $1,065.
 
 
                                 
Supplemental Data
                                
                                 
Pro forma net operating income (loss)
   
$
1,007
   
$
(4,991
)
   
$
7,702
   
$
(25,551
)
    
  
  
  
Pro forma basic net operating income (loss) per share
   
$
0.08
   
$
(0.56
)
   
$
0.70
   
$
(3.02
)
    
  
  
  
Pro forma diluted net operating income (loss) per share
   
$
0.08
   
$
(0.56
)
   
$
0.68
   
$
(3.02
)
    
  
  
  
Pro forma basic weighted average shares outstanding
   
 
11,959
   
 
8,945
 
   
 
11,036
   
 
8,469
 
    
  
  
  
Pro forma diluted weighted average shares outstanding
   
 
12,629
   
 
8,945
 
   
 
11,368
   
 
8,469
 
    
  
  
  
 
Pro forma net operating income (loss) is calculated by starting with net income (loss) from continuing operations and adjusting for restructuring and impairment charges, amortization of goodwill and intangible assets, loss on investments, reduction in estimated cost of litigation settlement, gain on contract termination, gain on early extinguishment of notes payable, and discount amortization expense on notes payable. Additionally, the pro forma net operating income for the three and nine months ended September 30, 2002 excludes other non-recurring charges totaling $358,000 and $74,000, respectively. The pro forma net operating loss for the nine months ended September 30, 2001 excludes other non-recurring gains totaling $345,000. Pro forma basic and diluted net operating income (loss) per share is computed by dividing pro forma net operating income (loss) by pro forma basic and diluted weighted average shares outstanding. For the three and nine months ended September 30, 2001, the pro forma basic and diluted weighted average shares outstanding excludes potentially dilutive securities because their effect would be anti-dilutive since the pro forma results reflect a net loss for such periods.
 
Additional schedules are attached hereto that: (i) reconcile net income (loss) from continuing operations to pro forma net operating income (loss) and (ii) compute basic and diluted earnings (loss) per share.

6

MICROSTRATEGY INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
 
    
September 30,
     
December 31,
  
    
2002
     
2001
  
    
(unaudited)
     
(audited)
  
Assets
                  
Current assets
                  
Cash and cash equivalents
   
$
22,323
 
   
$
38,409
 
Restricted cash
   
 
6,062
 
   
 
439
 
Short-term investments
   
 
53
 
   
 
904
 
Accounts receivable, net
   
 
19,850
 
   
 
22,281
 
Prepaid expenses and other current assets
   
 
4,865
 
   
 
5,902
 
    
  
Total current assets
   
 
53,153
 
   
 
67,935
 
 
Property and equipment, net
   
 
20,161
 
   
 
26,506
 
Goodwill and intangible assets, net
   
 
2,735
 
   
 
5,402
 
Deposits and other assets
   
 
5,813
 
   
 
3,789
 
    
  
Total Assets
   
$
81,862
 
   
$
103,632
 
    
  
Liabilities and Stockholders’ Equity (Deficit)
                  
Current liabilities
                  
Accounts payable and accrued expenses
   
$
16,942
 
   
$
18,935
 
Accrued compensation and employee benefits
   
 
7,236
 
   
 
13,654
 
Accrued interest and preferred dividends
   
 
8,216
 
   
 
7,351
 
Accrued restructuring costs
   
 
6,387
 
   
 
7,422
 
Deferred revenue and advance payments
   
 
22,804
 
   
 
20,987
 
Contingency from terminated contract
   
 
—  
 
   
 
17,074
 
Working capital line of credit
   
 
—  
 
   
 
1,212
 
Notes payable
   
 
4,573
 
   
 
—  
 
Net liabilities of discontinued operations
   
 
1,900
 
   
 
4,479
 
    
  
Total current liabilities
   
 
68,058
 
   
 
91,114
 
 
Deferred revenue and advance payments
   
 
1,911
 
   
 
5,431
 
Accrued litigation settlement
   
 
—  
 
   
 
68,637
 
Other long-term liabilities
   
 
2,502
 
   
 
3,536
 
Accrued restructuring costs
   
 
3,724
 
   
 
4,271
 
Notes payable
   
 
49,443
 
   
 
—  
 
    
  
Total Liabilities
   
 
125,638
 
   
 
172,989
 
    
  
Series A redeemable convertible preferred stock
   
 
—  
 
   
 
6,385
 
Series B redeemable convertible preferred stock
   
 
—  
 
   
 
32,343
 
Series C redeemable convertible preferred stock
   
 
—  
 
   
 
25,937
 
Series D convertible preferred stock
   
 
—  
 
   
 
3,985
 
Stockholders’ equity (deficit):
                  
Preferred stock undesignated; $.001 par value; 4,971 shares authorized; no shares issued or outstanding
   
 
—  
 
   
 
—  
 
Series F convertible preferred stock; $.001 par value; 2 shares authorized; 1 and 0 shares issued and outstanding, respectively
   
 
1,704
 
   
 
—  
 
Class A common stock; $.001 par value; 330,000 shares authorized; 8,533 and 4,369 shares issued and outstanding, respectively
   
 
9
 
   
 
4
 
Class B common stock; $.001 par value; 165,000 shares authorized; 4,643 and 4,823 shares issued and outstanding, respectively
   
 
5
 
   
 
5
 
Additional paid-in capital
   
 
299,171
 
   
 
239,663
 
Deferred compensation
   
 
(32
)
   
 
(99
)
Accumulated other comprehensive income
   
 
2,007
 
   
 
2,547
 
Accumulated deficit
   
 
(346,640
)
   
 
(380,127
)
    
  
Total Stockholders’ Equity (Deficit)
   
 
(43,776
)
   
 
(138,007
)
Total Liabilities and Stockholders’ Equity (Deficit)
   
$
81,862
 
   
$
103,632
 
    
  

7

 
MICROSTRATEGY INCORPORATED
Reconciliation of net income (loss) from continuing operations to pro forma net operating income (loss)
(in thousands)
(unaudited)
 
    
Three Months Ended
September 30,
     
Nine Months Ended
September 30,
  
    
2002
     
2001
     
2002
     
2001
  
Net income (loss) from continuing operations
   
$
2,990
 
   
$
(6,092
)
   
$
33,487
 
   
$
(24,951
)
Restructuring and impairment charges
   
 
370
 
   
 
2,977
 
   
 
2,764
 
   
 
26,399
 
Amortization of goodwill and intangible assets
   
 
856
 
   
 
4,248
 
   
 
2,683
 
   
 
12,746
 
Loss on investments
   
 
29
 
   
 
922
 
   
 
523
 
   
 
2,252
 
Reduction in estimated cost of litigation settlement
   
 
—  
 
   
 
(7,046
)
   
 
(11,396
)
   
 
(41,652
)
Gain on contract termination
   
 
—  
 
   
 
—  
 
   
 
(16,837
)
   
 
—  
 
Gain on early extinguishment of notes payable
   
 
(4,661
)
   
 
—  
 
   
 
(4,661
)
   
 
—  
 
Discount amortization expense on notes payable
   
 
1,065
 
   
 
—  
 
   
 
1,065
 
   
 
—  
 
Other non-recurring items
   
 
358
 
   
 
—  
 
   
 
74
 
   
 
(345
)
    
  
  
  
Total pro forma adjustments
   
 
(1,983
)
   
 
1,101
 
   
 
(25,785
)
   
 
(600
)
    
  
  
  
Pro forma net operating income (loss)
   
$
1,007
 
   
$
(4,991
)
   
$
7,702
 
   
$
(25,551
)
    
  
  
  
 
MICROSTRATEGY INCORPORATED
Pro forma adjustments—Cash vs. Non-cash
(in thousands)
(unaudited)
 
    
Three Months Ended
September 30,
     
Nine Months Ended
September 30,
  
    
2002
     
2001
     
2002
     
2001
  
Non-cash:
                                    
Restructuring and impairment charges
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
6,443
 
Amortization of goodwill and intangible assets
   
 
856
 
   
 
4,248
 
   
 
2,683
 
   
 
12,746
 
Loss on investments
   
 
29
 
   
 
922
 
   
 
523
 
   
 
2,252
 
Reduction in estimated cost of litigation settlement
   
 
—  
 
   
 
(7,046
)
   
 
(11,396
)
   
 
(41,652
)
Gain on contract termination
   
 
—  
 
   
 
—  
 
   
 
(16,837
)
   
 
—  
 
Gain on early extinguishment of notes payable
   
 
(4,661
)
   
 
—  
 
   
 
(4,661
)
   
 
—  
 
Discount amortization expense on notes payable
   
 
1,065
 
   
 
—  
 
   
 
1,065
 
   
 
—  
 
Other non-recurring items
   
 
362
 
   
 
—  
 
   
 
284
 
   
 
408
 
    
  
  
  
Total non-cash
   
 
(2,349
)
   
 
(1,876
)
   
 
(28,339
)
   
 
(19,803
)
Cash:
                                    
Restructuring and impairment charges
   
 
370
 
   
 
2,977
 
   
 
2,764
 
   
 
19,956
 
Other non-recurring items
   
 
(4
)
   
 
—  
 
   
 
(210
)
   
 
(753
)
    
  
  
  
Total cash
   
 
366
 
   
 
2,977
 
   
 
2,554
 
   
 
19,203
 
Total pro forma adjustments
   
$
(1,983
)
   
$
1,101
 
   
$
(25,785
)
   
$
(600
)
    
  
  
  

8

 
MICROSTRATEGY INCORPORATED
Reconciliation of net income attributable to common stockholders to pro forma EBITDA
(in thousands)
(unaudited)
 
    
Three Months Ended
September 30,
     
Nine Months Ended
September 30,
  
    
2002
     
2001
     
2002
     
2001
  
Net income attributable to common stockholders
   
$
37,374
 
   
$
36,135
 
   
$
62,748
 
   
$
7,114
 
Interest income
   
 
(200
)
   
 
(605
)
   
 
(609
)
   
 
(1,913
)
Interest expense
   
 
2,772
 
   
 
1,794
 
   
 
6,050
 
   
 
3,565
 
Provision for income taxes
   
 
312
 
   
 
1,003
 
   
 
1,131
 
   
 
1,340
 
Depreciation and amortization
   
 
2,518
 
   
 
2,959
 
   
 
7,605
 
   
 
10,363
 
Amortization of goodwill and intangible assets
   
 
856
 
   
 
4,248
 
   
 
2,683
 
   
 
12,746
 
Income (loss) from discontinued operations
   
 
—  
 
   
 
(93
)
   
 
—  
 
   
 
34,917
 
    
  
  
  
EBITDA before pro forma adjustments
 
   
 
43,632
 
   
 
45,441
 
   
 
79,608
 
   
 
68,132
 
Pro forma adjustments to EBITDA:
                                    
Restructuring and impairment charges
   
 
370
 
   
 
2,977
 
   
 
2,764
 
   
 
26,399
 
Loss on investments
   
 
29
 
   
 
922
 
   
 
523
 
   
 
2,252
 
Reduction in estimated cost of litigation settlement
   
 
—  
 
   
 
(7,046
)
   
 
(11,396
)
   
 
(41,652
)
Gain on contract termination
   
 
—  
 
   
 
—  
 
   
 
(16,837
)
   
 
—  
 
Gain on early extinguishment of notes payable
   
 
(4,661
)
   
 
—  
 
   
 
(4,661
)
   
 
—  
 
Other (income) expense, net
   
 
300
 
   
 
923
 
   
 
(1,753
)
   
 
1,432
 
Dividends, accretion, and beneficial conversion feature on convertible preferred stock
   
 
1,751
 
   
 
2,789
 
   
 
6,874
 
   
 
7,311
 
Net gain on refinancing of series A redeemable convertible preferred stock
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
(29,370
)
Net gain on refinancing of series B, C and D convertible preferred stock
   
 
(36,135
)
   
 
—  
 
   
 
(36,135
)
   
 
—  
 
Gain on early redemption of redeemable convertible preferred stock of discontinued operations
   
 
—  
 
   
 
(44,923
)
   
 
—  
 
   
 
(44,923
)
    
  
  
  
Pro forma EBITDA
   
$
5,286
 
   
$
1,083
 
   
$
18,987
 
   
$
(10,419
)
    
  
  
  

9

 
MICROSTRATEGY INCORPORATED
Computation of basic and diluted earnings per share
(in thousands, except per share data)
(unaudited)
 
    
Three months ended
September 30, 2002
   
Three months ended
September 30, 2001
    
Income
(Numerator)
       
Shares
(Denominator)
   
Per Share
Amount
   
Income
(Numerator)
       
Shares
(Denominator)
   
Per Share
Amount
Net income (loss) from continuing
operations
   
$
2,990
 
                 
$
(6,092
)
              
Income from discontinued operations
   
 
—  
 
                 
 
93
 
              
    
                
             
Net income (loss)
   
 
2,990
 
                 
 
(5,999
)
              
Dividends, accretion and beneficial conversion feature on convertible preferred stock
   
 
(1,751
)
                 
 
(2,789
)
              
Net gain on refinancing of series B, C and D convertible preferred stock
   
 
36,135
 
                 
 
—  
 
              
Gain on early redemption of redeemable convertible preferred stock of discontinued operations
   
 
—  
 
                 
 
44,923
 
              
    
                
             
Net income attributable to common stockholders
   
 
37,374
 
                 
 
36,135
 
              
Effect of common stock and participating convertible securities:
                                              
Weighted average shares of
class A common stock
   
 
—  
 
     
7,029
          
 
—  
 
     
4,003
       
Weighted average shares of
class B common stock
   
 
—  
 
     
4,643
          
 
—  
 
     
4,942
       
Series C preferred stock
   
 
(14,163
)
     
64
          
 
—  
 
     
—  
       
Series B preferred stock
   
 
(17,524
)
     
106
          
 
—  
 
     
—  
       
Series D preferred stock
   
 
(3,466
)
     
117
          
 
231
 
     
325
       
Series A preferred stock
   
 
—  
 
     
—  
          
 
186
 
     
239
       
Series E preferred stock
   
 
—  
 
     
—  
          
 
178
 
     
185
       
    
    
         
    
      
Basic earnings per share
   
 
2,221
 
     
11,959
   
$
0.19
   
 
36,730
 
     
9,694
   
$
3.79
                    
                  
Effect of dilutive securities:
                                              
Series F preferred stock
   
 
—  
 
     
579
          
 
—  
 
     
—  
       
Employee stock options
   
 
—  
 
     
91
          
 
—  
 
     
216
       
    
    
         
    
      
Diluted earnings per share
   
$
2,221
 
     
12,629
   
$
0.18
   
$
36,730
 
     
9,910
   
$
3.71
    
    
  
  
    
  
 
The numerator in the basic and diluted earnings per share calculation for the three months ended September 30, 2002 has been adjusted to deduct the $36.1 million gain on the refinancing of the series B, C and D convertible preferred stock and add back $982,000 of dividends and accretion on the series B, C and D convertible preferred stock that would have been excluded from net income attributable to common stockholders assuming conversion at the beginning of the period under the if-converted method. The numerator in the basic and diluted earnings per share calculation for the three months ended September 30, 2001 has been adjusted to add back $595,000 of dividends and accretion on the series A, D and E convertible preferred stock that would have been excluded from net income attributable to common stockholders assuming conversion at the beginning of the period under the if-converted method.
 
The basic and diluted earnings per share calculation for the three months ended September 30, 2001 excluded series B and C preferred stock, which were convertible into 265,000 and 159,000 weighted average shares of class A common stock, respectively, because their effect would have been anti-dilutive.

10

 
MICROSTRATEGY INCORPORATED
Computation of basic and diluted earnings (loss) per share
(in thousands, except per share data)
(unaudited)
 
    
Nine months ended
September 30, 2002
   
Nine months ended
September 30, 2001
  
    
Income (Numerator)
       
Shares (Denominator)
   
Per Share Amount
   
Income (Numerator)
       
Shares (Denominator)
   
Per Share Amount
  
Net income (loss) from continuing operations
   
$
33,487
 
                 
$
(24,951
)
                
Loss from discontinued operations
   
 
—  
 
                 
 
(34,917
)
                
    
                
               
Net income (loss)
   
 
33,487
 
                 
 
(59,868
)
                
Dividends, accretion and beneficial conversion feature on convertible preferred stock
   
 
(6,874
)
                 
 
(7,311
)
                
Net gain on refinancing of series A redeemable convertible preferred stock
   
 
—  
 
                 
 
29,370
 
                
Net gain on refinancing of series B, C and D convertible preferred stock
   
 
36,135
 
                 
 
—  
 
                
Gain on early redemption of redeemable convertible preferred stock of discontinued operations
   
 
—  
 
                 
 
44,923
 
                
    
                
               
Net income attributable to common stockholders
   
 
62,748
 
                 
 
7,114
 
                
Effect of common stock and participating convertible securities:
                                                
Weighted average shares of class A common stock
   
 
—  
 
     
5,428
          
 
—  
 
     
3,527
         
Weighted average shares of class B common stock
   
 
—  
 
     
4,823
          
 
—  
 
     
4,942
         
Series C preferred stock
   
 
(12,054
)
     
128
          
 
—  
 
     
—  
         
Series B preferred stock
   
 
(15,311
)
     
212
          
 
—  
 
     
—  
         
Series D preferred stock
   
 
(2,992
)
     
232
          
 
—  
 
     
—  
         
Series A preferred stock
   
 
327
 
     
213
          
 
(25,227
)
     
318
         
    
    
         
    
        
Basic earnings (loss) per share
   
 
32,718
 
     
11,036
   
$
2.96
   
 
(18,113
)
     
8,787
   
$
(2.06
)
                    
                  
Effect of dilutive securities:
                                                
Series F preferred stock
   
 
—  
 
     
193
          
 
—  
 
     
—  
         
Employee stock options
   
 
—  
 
     
139
          
 
—  
 
     
—  
         
    
    
         
    
        
Diluted earnings (loss) per share
   
$
32,718
 
     
11,368
   
$
2.88
   
$
(18,113
)
     
8,787
   
$
(2.06
)
    
    
  
  
    
  
 
The numerator in the basic and diluted earnings per share calculation for the nine months ended September 30, 2002 has been adjusted to deduct the $36.1 million gain on the refinancing of the series B, C and D convertible preferred stock and add back $6.1 million of dividends and accretion on the series A, B, C and D convertible preferred stock that would have been excluded from net income attributable to common stockholders assuming conversion at the beginning of the period under the if-converted method. The numerator in the basic and diluted loss per share calculation for the nine months ended September 30, 2001 has been adjusted to deduct the $29.4 million gain on the refinancing of the series A preferred stock and add back $4.2 million of dividends and accretion on the series A preferred stock that would have been excluded from net income attributable to common stockholders assuming conversion at the beginning of the period under the if-converted method.
 
The basic and diluted loss per share calculation for the nine months ended September 30, 2001 excluded series B, C, D and E preferred stock, which were convertible into 105,958, 64,077, 127,467, 72,413 weighted average shares of class A common stock, respectively, because their effect would have been anti-dilutive. Additionally, employee stock options of 323,655 were excluded from the diluted loss per share calculation for the nine months ended September 30, 2001 because their effect would have been anti-dilutive.