**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,DC 20549**

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**FORM 10-K/A(Amendment No. 1)**

**(Mark One)**

**x**                              ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Forthe fiscal year ended March 31, 2006**

**or**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Commissionfile number 0-19817**

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**Stellent, Inc.**

(Exact name of registrantas specified in its charter)

| **Minnesota**                     |   | **41-1652566**         |
|-----------------------------------|--------|------------------------|
| *(State or other jurisdiction of* |   | *(I.R.S.  Employer*    |
| *incorporation or organization)*  |   | *Identification  No.)* |
|                              |   |                   |

 

**7500 Flying Cloud Drive,Suite 500**

**Eden Prairie, MN 55344**

(Address of principalexecutive offices and zip code) 

**(952) 903-2000**

(Registrant’s telephone number, including areacode)

**Securities registeredpursuant to Section 12(b) of the Act: **

**None**

**Securities registeredpursuant to Section 12(g) of the Act: Preferred Share**

**PurchaseRights; Common Stock, par value $.01 per share**

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act.  Yes o  No x

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 orSection 15(d) of the Act. Yes o No x

Indicate by check markwhether the registrant: (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes x  No o

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.  See definition of“accelerated filer and large accelerated filer” in Rule 12b-2 of the ExchangeAct (Check one)

Large Accelerated Filer o      AcceleratedFiler x      Non-Accelerated Filer o

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes o  Nox

The aggregate market valueof the registrant’s common stock held by non-affiliates of the registrant as ofSeptember 30, 2005 was approximately $221,109,000 based on the closing saleprice for the registrant’s common stock on that date as reported by The NASDAQStock Market. For purposes of determining such aggregate market value, allofficers and directors of the registrant are considered to be affiliates of theregistrant, as well as shareholders holding 10% or more of the outstandingcommon stock as reflected on Schedules 13D or 13G filed with the registrant.This number is provided only for the purpose of this report on Form 10-K anddoes not represent an admission by either the registrant or any such person asto the status of such person.

As ofJune 2, 2006, the registrant had approximately 29,555,000 shares of commonstock issued and outstanding.

 

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**EXPLANATORY NOTE**

This Amendment No. 1 to the Annual Report on Form 10-Kof Stellent, Inc. (the “Company”) for the fiscal year ended March 31, 2006(the “Form 10-K”) is being filed solely to correct clerical errors in thecalculations of non-financial disclosure items contained in Item 12 *Security Ownership of Certain Beneficial Owners and Management andRelated Stockholder Matters*and Note 5 of Item 15 *Exhibits and Financial Statement Schedules,*related to themaximum number of shares issuable to directors and employees and the number ofshare remaining available for future issuance under the Company’s equitycompensation plans.

The number of share remaining available for futureissuance under the Company’s equity compensation plans is revised from 6,817,416, as originallyreported, to 3,073,923. Also, the maximum shares issuable to employees anddirectors under the terms of the Company’s equity compensation plans is revisedfrom 13.4 million, as originally reported, to 12.5 million.

This amendment does not restate any previouslyreported financial statements, results of operations or related financial data.

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**EQUITY COMPENSATIONPLAN INFORMATION**

**Item 12.      *Security Ownership ofCertain Beneficial Owners and Management and Related Stockholder Matters***

The information about security ownership of certainbeneficial owners and management required by this Item is incorporated byreference to our definitive proxy statement to our 2006 Annual Meeting ofStockholders under the captions “Security Ownership of Certain BeneficialOwners and Management.”

Thefollowing table provides information as of March 31, 2006 for ourcompensation plans under which securities may be issued:

| **Plan Category**                                     | ** ** | ** ** | ** ** | **Number of securities to be issued  upon exercise of outstanding  options, warrants and rights** | ** ** | **Weighted-average  exercise price of  outstanding options,  warrants and rights** | ** **                                                        | **Number of securities  remaining available for  future issuance under  equity compensation plans** | ** ** |
|------------------------------------------------------------|------------|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity  Compensation Plans Approved by Securityholders     |       |       | 5,148,497  |                                                                                                                                                     |       |                                                                                                        | $ 9.84          |                                                                                                                                        |       |   | 3,073,923 | (1) |   |
| Equity  Compensation Plans Not Approved by Securityholders |       |       | 624,618    |                                                                                                                                                     |       |                                                                                                        | $ 9.06          |                                                                                                                                        |       |   | — |   |   |
| Total                                                      |       |       | 5,773,115  |                                                                                                                                                     |       |                                                                                                        | $ 9.76          |                                                                                                                                        |       |   | 3,073,923 |   |   |

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(1)   Includes securities available for future issuance under the 2005Equity Incentive Plan (the “2005 Plan”) shareholder approved compensation plansother than upon the exercise of an outstanding option, or right.

**EQUITY COMPENSATIONPLANS NOT APPROVED BY SECURITY HOLDERS**

***Stellent, Inc. 1999 Employee Stock Option andCompensation Plan***

InNovember 1999, the board adopted the 1999Employee Stock Option and Compensation Plan, known as the 1999 Plan. The1999 Plan has not been approved by our shareholders.

*SharesSubject to the 1999 Plan.*   As of March 31, 2006,707,166 shares of our common stockwere subject to outstanding awards granted under the 1999 Plan. No additionalawards may be granted under the 1999 Plan. If any award granted pursuant to the1999 Plan expires or terminates without being exercised in full, theunexercised shares released from such award will become available for issuanceunder the 2005 Plan. Previously granted but unexercised awards are subject toadjustment for any future stock dividends, splits, combinations, or otherchanges in capitalization as described in the 1999 Plan.

*PlanAdministration.*   The 1999 Plan is administered bya committee of two or more members of the board or if the board has notdesignated a committee, the board will constitute the committee and administerthe 1999 Plan.

*Eligibility.*   All employees of our company andits subsidiaries who are not also officers or directors of our company, andconsultants to our company or its subsidiaries, are eligible to receive awardsunder the 1999 Plan.

*Incentiveand Non-Statutory Stock Options.*   Bothincentive stock options and non-statutory stock options may be granted underthe terms of the 1999 Plan. However, since the 1999 Plan has not been approvedby our shareholders, under the Internal Revenue Code of 1986, incentive stock optionsmay not be granted under the 1999 Plan. The exercise price of an option isdetermined by the committee. The exercise price may not be less than 100% ofthe fair market value, as defined in the 1999 Plan, of our common stock on thedate the option is granted. Stock options may be granted and exercised at suchtimes as the committee may determine, provided that the term shall not exceedten years and one day from the 

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date of grant. Thepurchase price for common stock purchased upon the exercise of stock optionsmay be payable in cash, uncertified or certified check, bank draft, by deliveryof shares of our common stock having a fair market value on the date the optionis exercised equal to all or any part of the option price of the stock beingpurchased, by instructing us to withhold from the shares of common stockissuable upon exercise of the stock option shares having fair market value onthe date the option is exercised equal to all or any part of the option priceof the stock being purchased or any other manner authorized by the committee.

*StockAppreciation Rights.*   A stock appreciation rightmay be granted under the 1999 Plan with or without reference to any relatedstock option. The recipient of a stock appreciation right receives, withoutpayment to us, a number of shares of common stock, cash or any combinationthereof, the amount of which is determined by dividing: (x) the number of shares of common stock as to whichthe stock appreciation right is exercised multiplied by the amount by which thefair market value of the shares on the exercise date exceeds the purchase priceof shares of common stock under the related stock option or, if there is norelated stock option, an amount determined by the committee at the time ofgrant, by (y) the fair market value of a share of common stock on theexercise date.

*PerformanceShares.*   A performance share consists of an awardthat is paid in shares of common stock. Performance shares entitle therecipient to payment in amounts determined by the committee based upon theachievement of specified performance targets during a specified term.Performance shares may be subject to additional terms and conditions asdetermined by the committee.

*RestrictedStock and Other Stock-Based Awards.*   Thecommittee may grant, either alone or in combination with other types of awards,restricted stock and other stock-based awards. Restricted stock may containsuch restrictions, including provisions requiring forfeiture and imposingrestrictions on stock transfer, as the committee may determine. To enforce therestrictions imposed by the committee, a recipient must enter into an agreementwith us setting forth the conditions of the grant.

*Accelerationof Awards, Lapse of Restrictions, Forfeiture.*   Thecommittee may provide in a recipient’s agreement for the lapse or waiver ofrestrictions or conditions on restricted stock or other awards, or accelerationof the vesting of stock options, stock appreciation rights and other awards, oracceleration of the term with respect to which the achievement of performancetargets for performance shares is determined in the event of a fundamentalchange in the corporate structure of our company, or the replacement of themajority of the board members within a period of less than two years bydirectors not nominated and approved by the board, or, upon a change of controlof our company or a recipient’s death, disability or retirement. Options andstock appreciation rights automatically vest upon death or disability, unlessotherwise provided in a recipient’s agreement, or upon the occurrence of achange in control of our company. If a recipient’s employment or otherrelationship with our company or its affiliates is terminated for any reasonother than death or disability, then any unexercised portion of suchrecipient’s award will generally be forfeited, except as provided in the 1999Plan or such recipient’s agreement or by the committee.

*Adjustments,Modifications, Termination.*   The 1999 Plan givesthe committee discretion to adjust the kind and number of shares available forawards or subject to outstanding awards, the limitations on the number and typeof securities that may be issued to an individual recipient, the exercise priceof outstanding stock options, and performance targets for, and payments under,outstanding awards of performance shares upon mergers, recapitalizations, stockdividends, stock splits or similar changes affecting our company. Adjustmentsin performance targets and payments on performance shares are also permittedupon the occurrence of such other events as may be specified by the committee.The 1999 Plan also gives the board the right to terminate, suspend or modifythe 1999 Plan. Amendments to the 1999 Plan are subject to shareholder approval,however, if needed to comply with applicable laws or regulations. The committeemay generally also alter or amend any agreement covering an award granted underthe 1999 

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Plan to the extentpermitted by law. Under the 1999 Plan, the committee generally may canceloutstanding stock options and stock appreciation rights in exchange for thepayment of cash or other consideration to the recipients upon dissolutions,liquidations, mergers, statutory share exchanges or similar events involvingour company.

***Stellent, Inc. 2000 Employee Stock Incentive Plan***

In May 2000, the board adopted the 2000 EmployeeStock Incentive Plan, known as the 2000 Employee Plan. The 2000 Employee Planwas amended in October 2001. The 2000 Employee Plan has not been approvedby our shareholders.

*SharesSubject to the 2000 Employee Plan.*   As ofMarch 31, 2006, 1,293,291 sharesof our common stock were subject to outstanding awards granted. No additionalawards may be granted under the 2000 Employee Plan, and any award grantedpursuant to the 2000 Employee Plan expires or terminates without beingexercised in full, the unexercised shares released from such award will becomeavailable for issuance under the 2005 Plan. Previously granted but unexercisedawards are subject to adjustment for any future stock dividends, splits,combinations, or other changes in capitalization as described in the 2000Employee Plan.

*PlanAdministration.*   The 2000 Employee Plan isadministered by a committee of three or more members of the board or if theboard has not designated a committee, the board will constitute the committeeand administer the 2000 Employee Plan. The committee may delegate all or anypart of its responsibilities under the 2000 Employee Plan to officers or otherpersons for purposes of determining and administering awards.

*Eligibility.*   Allemployees of our company and its affiliates who are not officers or directorsof our company are eligible to receive awards under the 2000 Employee Plan.Awards may be granted by the committee to any individuals or entities who arenot employees of our company, but who provide services to us or our affiliatesas a consultant or adviser.

*Non-QualifiedStock Options.*   Non-qualified stock options maybe granted under the 2000 Employee Plan. The exercise price of an option isdetermined by the committee. The exercise price for stock options may not beless than 100% of the fair market value of our common stock on the date theoption is granted. Stock options may be granted and exercised at such times asthe committee may determine. No more than 500,000 shares of common stockunderlying stock options and stock appreciation rights may be granted to anyone person in any year. The purchase price for common stock purchased upon theexercise of stock options may be payable in cash, in our common stock having afair market value on the date the option is exercised equal to the option priceof the stock being purchased, or a combination of cash and stock, as providedin each stock option agreement. In addition, the committee may permitrecipients of stock options to simultaneously exercise options and sell thecommon stock purchased upon exercise and to use the sale proceeds to pay thepurchase price.

*StockAppreciation Rights and Performance Shares.*   Therecipient of a stock appreciation right receives all or a portion of the amountby which the fair market value of a specified number of shares, as of the datethe right is exercised, exceeds a price specified by the committee at the timethe right is granted. The price specified by the committee must be at least100% of the fair market value of our common stock on the date the right isgranted. No more than 500,000 shares of stock underlying stock appreciationrights and stock options may be awarded to any one person in any year.Performance shares entitle the recipient to payments in amounts determined bythe committee based upon the achievement of specified performance targetsduring a specified term. No person may receive performance shares relating tomore than 500,000 shares of our common stock in any year. Payments with respectto stock appreciation rights and performance shares may be paid in cash, sharesof our common stock, or a combination of cash and shares, as determined by thecommittee.

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*RestrictedStock and Other Stock-Based Awards.*   Thecommittee may grant, either alone or in combination with other types of awards,restricted stock and other stock-based awards. Restricted stock may containsuch restrictions, including provisions requiring forfeiture and imposingrestrictions on stock transfer, as the committee may determine and set forth ineach restricted stock agreement. No award of restricted stock may vest earlierthan one year from the date of grant, except as provided in each restrictedstock agreement. No more than 400,000 of the shares of common stock subject tothe 2000 Employee Plan may be granted as restricted stock subject toperformance conditions or subject to other stock-based awards.

*Accelerationof Awards, Lapse of Restrictions, Forfeiture.*   Thecommittee may provide in an award agreement for the lapse or waiver ofrestrictions or conditions on restricted stock or other awards, or accelerationof the vesting of stock options, stock appreciation rights and other awards, oracceleration of the term with respect to which the achievement of performancetargets for performance shares is determined in the event of a fundamentalchange in our corporate structure, upon a change of control of our company orupon a recipient’s death, disability or retirement. If a recipient’s employmentor other relationship with our company or its affiliates is terminated for anyreason, then any unexercised portion of such employee’s award will generally beforfeited, except as provided in that employee’s award agreement or by thecommittee.

*Adjustments,Modifications, Termination.*   The 2000 EmployeePlan gives the committee discretion to adjust the kind and number of sharesavailable for awards or subject to outstanding awards, the limitations on thenumber and type of securities that may be issued to an individual participant,the exercise price of outstanding stock options, and performance targets for,and payments under, outstanding awards of performance shares upon a merger,recapitalization, stock dividend, stock split or similar change affecting ourcompany. Adjustments in performance targets and payments on performance sharesare also permitted upon the occurrence of such other events as may be specifiedby the committee. The 2000 Employee Plan also gives the board the right toterminate, suspend or modify the 2000 Employee Plan. Amendments to the 2000Employee Plan are subject to shareholder approval, however, only if needed tocomply with any applicable law or regulation. Termination, suspension ormodification of the 2000 Employee Plan generally may not materially andadversely affect any right an individual participant may have acquired beforethe termination, suspension or modification, unless otherwise provided in thatindividual’s award agreement, or otherwise, or required by law. We (with theapproval of the committee) may amend any agreement covering an award grantedunder the 2000 Employee Plan unless the committee determines that the amendmentwould be materially adverse to the recipient and is not required by law. Underthe 2000 Employee Plan, the committee generally may cancel outstanding stockoptions and stock appreciation rights in exchange for the payment of cash orother consideration to the recipients upon dissolutions, liquidations, mergers,statutory share exchanges or similar events involving our company.

***InfoAccess 1995 Stock Option Plan***

In connection with our acquisition ofInfoAccess, Inc. on September 29, 1999, we assumed theInfoAccess, Inc. 1995 Stock Option Plan, known as the InfoAccess Plan. TheInfoAccess Plan was approved by the shareholders of InfoAccess on May 10,1995, but has not been approved by our shareholders.

*SharesSubject to the InfoAccess Plan.*   As of March 31, 2006, 3,123 shares of our common stock were subject to outstandingawards granted under the InfoAccess Plan. Noadditional stock options may be granted under the InfoAccess Plan.

*PlanAdministration.*   The InfoAccess Plan isadministered by the board or a committee appointed by the board. The board orcommittee has the authority, subject to the terms of the InfoAccess Plan, to 

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interpret provisions ofthe InfoAccess Plan and the options granted under it and to adoptrules and regulations for administering the InfoAccess Plan.

*Eligibility.*   Allemployees of InfoAccess were eligible to receive option grants under theInfoAccess Plan prior to our adoption of the InfoAccess Plan. Non-statutorystock options could be granted under the InfoAccess Plan prior to our adoptionto individuals or entities that were not employees of InfoAccess, but thatprovided services to InfoAccess or its affiliates as consultants or independentcontractors.

*Typesof Awards under the InfoAccess Plans.*   Bothincentive stock options and non-statutory stock options could be granted underthe InfoAccess Plan. The exercise price of an option was determined by thecommittee of the board of directors of InfoAccess administering the InfoAccessPlan at the time of the grant. The exercise price for all options under theInfoAccess Plan could not be less than 100% of the fair market value of theshares on the date of the grant. The exercise price for incentive stock optionsgranted to persons who beneficially owned 10% or more of the outstanding stockof InfoAccess at the time of the grant could not be less than 110% of the fairmarket value of the shares on the date of grant. The number of shares andpurchase price of each recipient’s option grant has been adjusted to reflectthe exchange ratio of InfoAccess shares for our shares in the merger of thecompanies. Stock options were granted and may be exercised at such times as thecommittee of the board of directors of InfoAccess administering the InfoAccessPlans at the time of the grant determined; however, under the InfoAccess Plan,if no exercise schedule is set forth in a recipient’s agreement, 25% of theshares subject to the option shall vest two years following the start of therecipient’s continuous relationship with our company, and an additional 25% ofthe shares subject to the option shall vest following each additional year ofthe recipient’s continuous relationship with our company. The purchase pricefor common stock purchased upon the exercise of stock options may be payable incash or the committee may, subject to approval by the board, permit recipientsof stock options to deliver a promissory note as full or partial payment forthe exercise of a stock option. In addition, shares may be purchased with ourcommon stock, that a recipient has held at least six months, having a fairmarket value on the date the option is exercised equal to the option price ofthe stock being purchased.

*Terminationof Employment or Relationship.*   If a recipient’srelationship with our company or its affiliates is terminated for any reasonother than for cause (as defined in the InfoAccess Plan), death or totaldisability, then any portion of the recipient’s option grant that is vested butunexercised may be exercised for a period of thirty days following thetermination of employment, unless the option by its terms expires earlier, andexcept as otherwise provided in the InfoAccess Plan or such recipient’sagreement. If a recipient’s relationship with us or our affiliates isterminated for cause, as defined in the InfoAccess Plan, such recipient’soptions granted under the InfoAccess Plan automatically will terminate as ofthe first discovery by our company of any reason for that recipient’stermination for cause. If a recipient’s employment with us or our affiliates isterminated by such recipient’s total disability, as defined in the InfoAccessPlan, such recipient may exercise vested but unexercised options granted underthe InfoAccess Plan for a period of three months after such recipient’s terminationdate, subject to the expiration of the option under the terms of suchrecipient’s agreement. If a recipient’s employment with us or our affiliates isterminated by such recipient’s death while an employee of our company or itsaffiliates, or during the period in which options granted under the InfoAccessPlan may be exercised due to the termination of such recipient’s employmentwith us or our affiliates other than for cause (as defined in the InfoAccessPlan) or such recipient’s total disability, such recipient’s legalrepresentative may exercise vested but unexercised options granted to thatrecipient under the InfoAccess Plan for a period of one year after thatrecipient’s death, subject to the expiration of the option under the terms ofsuch recipient’s option agreement.

*Adjustmentsand Modifications.  **The InfoAccess Plan provides that eachoption will be proportionately adjusted for any increase or decrease in thenumber of issued shares of our common stock resulting from a split-up orconsolidation of shares or any like capital adjustment, or the payment of any*

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*stock dividend. The InfoAccess Plan gives the board theright to terminate, suspend, or modify the InfoAccess Plan as long as therights and obligation related to outstanding option grants are not adverselyaffected.*

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**Exhibits**
| Exhibit   Number | ** ** | **Description**                                                                                                                                                                                                         | ** ** | **Reference**            |
|------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|
| 31.1             |       | Certification by  Robert F. Olson, Chairman of the Board, President and Chief Executive Officer,  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                   |       | Electronic  Transmission |
| 31.2             |       | Certification by  Darin P. McAreavey, Executive Vice President, CFO, Treasurer and Secretary,  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                           |       | Electronic  Transmission |
| 32.1             |       | Certification by  Robert F. Olson, Chairman of the Board, President and Chief Executive  Officer, pursuant to 18 USC Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |       | Electronic  Transmission |
| 32.2             |       | Certification by  Darin P. McAreavey, Executive Vice President, CFO, Treasurer and  Secretary, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |       | Electronic  Transmission |

 

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned thereunto duly authorized.
|                          | STELLENT, INC. |
|--------------------------|----------------|
|                     | (Registrant)   |
|                     | By:            | /s/  ROBERT F. OLSON |
|                     |           | Robert F. Olson, |
|                     |           | *Chairman  of the Board, President and* |
|                     |           | *Chief  Executive Officer* |
| Date: June 21, 2006 |           |   |

 

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**SIGNATURES AND POWEROF ATTORNEY**

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed by the following persons on behalf of the registrant and in thecapacities indicated on June 21, 2006.
|        |   | /s/  ROBERT F. OLSON                                            |
|--------|--------|-----------------------------------------------------------------|
|   |   | Robert F. Olson,                                                |
|   |   | Chairman of the  Board,                                         |
|   |   | Chief Executive  Officer                                        |
|   |   | and President  (Principal Executive Officer)                    |
|   |   | /s/  DARIN P. MCAREAVEY                                         |
|   |   | Darin P.  McAreavey,                                            |
|   |   | Executive Vice  President,                                      |
|   |   | Chief Financial  Officer,                                       |
|   |   | Secretary,  Treasurer                                           |
|   |   | (Principal  Financial Officer and Principal Accounting Officer) |
|   |   | *                                                               |
|   |   | William B. Binch,  Director                                     |
|   |   | *                                                               |
|   |   | Kenneth H. Holec,  Director                                     |
|   |   | *                                                               |
|   |   | Alan B. Menkes,  Director                                       |
|   |   | *                                                               |
|   |   | Philip E. Soran,  Director                                      |
|   |   | *                                                               |
|   |   | Raymond A.  Tucker, Director                                    |
|   |   | *                                                               |
|   |   | Steven C.  Waldron, Director                                    |
|   |   |                                                            |
|   |   |                                                            |

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*                    DarinP. McAreavey, by signing his name below, does hereby sign this document onbehalf of each of the above-named directors of the registrant pursuant to powerof attorney duly reported by such persons.

| By:    |   | /s/ DARIN P. MCAREAVEY |   |   |
|--------|--------|------------------------|--------|--------|
|   |   | Darin P. McAreavey     |   |   |

 

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**STELLENT, INC.**

**INDEXTO CONSOLIDATED FINANCIAL STATEMENTS**

|                                                                                                                    | ** ** | **Page** |
|--------------------------------------------------------------------------------------------------------------------|------------|----------|
| Report of Independent Registered Public Accounting  Firm (regarding Financial Statements)                          |       | 12       |
| Report of Independent Registered Public Accounting  Firm (regarding Internal Control Over Financial Reporting)     |       | 13       |
| Consolidated  Balance Sheets as of March 31, 2005 and 2006                                                    |       | 14       |
| Consolidated Statements of Operations for the years  ended March 31, 2004, 2005 and 2006                      |       | 15       |
| Consolidated Statements of Shareholders’ Equity for  the years ended March 31, 2004, 2005 and 2006  |       | 16       |
| Consolidated Statements of Cash Flows for the years  ended March 31, 2004, 2005 and 2006                      |       | 17       |
| Notes to Consolidated Financial Statements                                                                         |       | 18       |

 

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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directors and ShareholdersStellent, Inc.

We have audited the accompanying consolidated balancesheets of Stellent, Inc. (a Minnesota Corporation) and subsidiaries as of March 31,2006 and 2005, and the related consolidated statements of operations, stockholders’equity, and cash flows for each of the three years in the period ended March 31,2006. These financial statements are the responsibility of Stellent, Inc.’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audits.

We conducted our audits in accordance with auditing standardsof the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, 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 statementsreferred to above present fairly, in all material respects, the financialposition of Stellent, Inc. and subsidiaries as of March 31, 2006 and2005, and the consolidated results of their operations and their consolidated cashflows for the each of the three years in the period ended March 31, 2006in conformity with accounting principles generally accepted in the UnitedStates of America.

We also have audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the effectiveness of Stellent, Inc. and subsidiaries’ internalcontrol over financial reporting as of March 31, 2006, based on *Internal Control—Integrated Framework* issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO) and ourreport dated June 12, 2006 expressed an unqualified opinion on management’sassessment of the effectiveness of the Company’s internal control overfinancial reporting and an unqualified opinion on the effectiveness of Stellent,Inc. and subsidiaries’ internal control over financial reporting.

/s/ GRANT THORNTON LLP

Minneapolis, Minnesota

June 12, 2006

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**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directorsand ShareholdersStellent, Inc.

We have audited management’sassessment, included in the accompanying Management’s Report on InternalControl over Financial Reporting, that Stellent, Inc. and subsidiaries’ (aMinnesota Corporation) maintained effective internal control over financialreporting as of March 31, 2006, based on the criteria established in *Internal Control—Integrated Framework* issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO). Stellent,Inc. and subsidiaries’ management is responsible for maintaining effectiveinternal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting. Our responsibilityis to express an opinion on management’s assessment and an opinion on theeffectiveness of the company’s internal control over financial reporting basedon our audit.

We conducted our audit inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether effective internal control overfinancial reporting was maintained in all material respects. Our audit includedobtaining an understanding of internal control over financial reporting,evaluating management’s assessment, testing and evaluating the design andoperating effectiveness of internal control, and performing such otherprocedures as we considered necessary in the circumstances. We believe that anaudit provides a reasonable basis for our opinions.

A company’s internalcontrol over financial reporting is a process designed to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generallyaccepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with the policiesor procedures may deteriorate.

In our opinion, management’sassessment that Stellent, Inc. and subsidiaries maintained effectiveinternal control over financial reporting as of March 31, 2006, is fairlystated, in all material respects, based on the criteria established in *Internal Control—Integrated Framework* issued by COSO. Also,in our opinion, Stellent, Inc. and subsidiaries maintained, in allmaterial respects, effective internal control over financial reporting as of March 31,2006, based on the criteria established in Internal Control-IntegratedFramework issued by COSO.

Wehave also audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the consolidated balance sheets ofStellent, Inc. and subsidiaries as of March 31, 2006 and 2005, andthe related consolidated statements of operations, shareholders’ equity, andcash flows for each of the three years in the period ended March 31, 2006,and our report dated June 12, 2006 expressed an unqualified opinion on thosefinancial statements.
|                        | /s/ GRANT  THORNTON LLP |
|------------------------|-------------------------|
| Minneapolis, Minnesota |                    |
| June 12, 2006          |                    |

 

13

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**STELLENT, INC.CONSOLIDATED BALANCE SHEETS(In thousands, except per share data)**

| ** **                                                                                                               | ** ** | **March 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|
| ** **                                                                                                               | ** ** | **2005**           | ** ** | **2006** | ** ** |
| **ASSETS**                                                                                                               | ** ** | ** **         | ** ** | ** ** | ** ** |
| Current assets                                                                                                           |       |               |       |   |   |
| Cash and equivalents                                                                                                     |       | $                  | 49,113     |   | $ | 34,741 |   |
| Short-term marketable securities                                                                                         |       | 17,523             |       | 29,900 |   |
| Trade accounts receivable, net                                                                                           |       | 30,063             |       | 31,320 |   |
| Prepaid royalties, current portion                                                                                       |       | 965                |       | 941 |   |
| Prepaid expenses and other current assets                                                                                |       | 3,884              |       | 4,512 |   |
| Total current assets                                                                                                     |       | 101,548            |       | 101,414 |   |
| Long-term  marketable securities                                                                                         |       | 6,114              |       | 17,112 |   |
| Property and  equipment, net                                                                                             |       | 4,333              |       | 7,822 |   |
| Prepaid  royalties, net of current portion                                                                               |       | 1,044              |       | 923 |   |
| Goodwill                                                                                                                 |       | 67,640             |       | 74,409 |   |
| Other acquired  intangible assets, net                                                                                   |       | 5,615              |       | 4,003 |   |
| Other                                                                                                                    |       | 1,358              |       | 866 |   |
|                                                                                                                     |       | $                  | 187,652    |   | $ | 206,549 |   |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                           | ** ** | ** **         | ** ** | ** ** | ** ** |
| Current liabilities                                                                                                      |       |               |       |   |   |
| Accounts payable                                                                                                         |       | $                  | 3,867      |   | $ | 3,072 |   |
| Deferred revenues, current portion                                                                                       |       | 19,854             |       | 20,143 |   |
| Commissions payable                                                                                                      |       | 2,419              |       | 3,839 |   |
| Accrued expenses and other                                                                                               |       | 7,867              |       | 7,442 |   |
| Current portions of obligations under capital leases                                                                     |       | 170                |       | 473 |   |
| Total current liabilities                                                                                                |       | 34,177             |       | 34,969 |   |
| Deferred revenue,  net of current portion                                                                                |       | 946                |       | 1,079 |   |
| Deferred rent,  net of current portion                                                                                   |       | —             |       | 1,264 |   |
| Obligations under  capital leases, net of current portions                                                               |       | —             |       | 281 |   |
| Total liabilities                                                                                                        |       | 35,123             |       | 37,593 |   |
| Shareholders’ equity                                                                                                |       |               |       |   |   |
| Capital stock,  $0.01 par value, 100,000 shares authorized                                                               |       |               |       |   |   |
| Preferred stock, 10,000 shares authorized, no shares  issued and outstanding at March 31, 2005 and 2006             |       | —             |       | — |   |
| Common stock, 90,000 shares authorized, 27,476 and  29,443 shares issued and outstanding at March 31, 2005 and 2006 |       | 275                |       | 294 |   |
| Additional  paid-in capital                                                                                              |       | 243,013            |       | 254,381 |   |
| Unearned  compensation                                                                                                   |       | (469               | )          | (123 | ) |
| Accumulated  deficit                                                                                                     |       | (91,256            | )          | (85,793 | ) |
| Accumulated other  comprehensive income                                                                                  |       | 966                |       | 197 |   |
| Total shareholders’ equity                                                                                          |       | 152,529            |       | 168,956 |   |
|                                                                                                                     |       | $                  | 187,652    |   | $ | 206,549 |   |

 

The accompanying notes are an integral part of the consolidated financial statements.

14

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**STELLENT, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data)**

| ** **                                                | ** ** | **Year Ended March 31,** | ** ** |
|-----------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                | ** ** | **2004**                                | ** ** | **2005** | ** ** | **2006** | ** ** |
| Revenues                                                  |       |                                    |       |   |   |   |   |
| Product licenses                                          |       | $                                       | 41,571     |   | $ | 54,376 |   | $ | 56,950 |   |
| Services                                                  |       | 14,349                                  |       | 19,772 |   | 26,836 |   |
| Post-contract support                                     |       | 19,854                                  |       | 32,663 |   | 39,599 |   |
| Total revenues                                            |       | 75,774                                  |       | 106,811 |   | 123,385 |   |
| Cost of revenues                                          |       |                                    |       |   |   |   |   |
| Product licenses                                          |       | 4,936                                   |       | 5,017 |   | 3,886 |   |
| Services                                                  |       | 13,272                                  |       | 19,550 |   | 25,046 |   |
| Post-contract support                                     |       | 3,885                                   |       | 5,350 |   | 7,269 |   |
| Amortization of capitalized software from  acquisitions   |       | 1,574                                   |       | 2,390 |   | 1,879 |   |
| Total cost of revenues                                    |       | 23,667                                  |       | 32,307 |   | 38,080 |   |
| Gross profit                                              |       | 52,107                                  |       | 74,504 |   | 85,305 |   |
| Operating expenses                                        |       |                                    |       |   |   |   |   |
| Sales and marketing                                       |       | 39,122                                  |       | 42,365 |   | 46,787 |   |
| General and administrative                                |       | 8,856                                   |       | 14,097 |   | 12,282 |   |
| Research and development                                  |       | 13,263                                  |       | 17,958 |   | 20,153 |   |
| Acquisition—related sales, marketing and other costs |       | —                                  |       | 886 |   | — |   |
| Amortization of acquired intangible assets and other      |       | 2,006                                   |       | 677 |   | 626 |   |
| Impairment charge on fixed assets                         |       | —                                  |       | 375 |   | — |   |
| Restructuring charges                                     |       | 743                                     |       | 3,673 |   | 1,123 |   |
| Total operating expenses                                  |       | 63,990                                  |       | 80,031 |   | 80,971 |   |
| Income (loss)  from operations                            |       | (11,883                                 | )          | (5,527 | ) | 4,334 |   |
| Other income (expense)                                    |       |                                    |       |   |   |   |   |
| Interest income, net                                      |       | 982                                     |       | 822 |   | 2,181 |   |
| Investment (impairment) gain on sale                      |       | 388                                     |       | (1,136 | ) | — |   |
| Total other income (expense)                              |       | 1,370                                   |       | (314 | ) | 2,181 |   |
| Net income (loss)  before income taxes                    |       | (10,513                                 | )          | (5,841 | ) | 6,515 |   |
| Provision for  income taxes                               |       | —                                  |       | — |   | 173 |   |
| Net income (loss)                                         |       | $                                       | (10,513    | ) | $ | (5,841 | ) | $ | 6,342 |   |
| Net income (loss)  per common share:                      |       |                                    |       |   |   |   |   |
| Basic                                                     |       | $                                       | (0.48      | ) | $ | (0.22 | ) | $ | 0.22 |   |
| Diluted                                                   |       | $                                       | (0.48      | ) | $ | (0.22 | ) | $ | 0.21 |   |
| Weighted average shares  outstanding:                     |       |                                    |       |   |   |   |   |
| Basic                                                     |       | 22,028                                  |       | 26,224 |   | 28,266 |   |
| Diluted                                                   |       | 22,028                                  |       | 26,224 |   | 29,615 |   |

 

The accompanying notes are an integral part of the consolidated financial statements.

15

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**STELLENT, INC.CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY(In thousands, except per share data)**

| ** **                                                 | ** ** | ** **            | ** ** | ** **  | ** ** | ** **     | ** ** | ** **      | ** ** | ** **        | ** ** | **Accumulated**        | ** ** | ** **        | ** ** | ** **             | ** ** |
|------------------------------------------------------------|------------|-----------------------|------------|-------------|------------|----------------|------------|-----------------|------------|-------------------|------------|------------------------|------------|-------------------|------------|------------------------|------------|
| ** **                                                 | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional** | ** ** | **Accumulated** | ** ** | ** **        | ** ** | **Other**              | ** ** | **Total**         | ** ** | ** **             | ** ** |
| ** **                                                 | ** ** | **Common Stock** | ** ** | **Paid-in** | ** ** | **(Deficit)/** | ** ** | **Unearned**    | ** ** | **Comprehensive** | ** ** | **Shareholders’** | ** ** | **Comprehensive** | ** ** |
| ** **                                                 | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Earnings**    | ** ** | **Compensation**  | ** ** | **Income (Loss)** | ** ** | **Equity**        | ** ** | **Income (Loss)** | ** ** |
| Balance at  April 1, 2003                             |       | 21,856                |       |        | $          | 219            |       |            |       | $                 | 186,604    |                   |       |              | $          | (74,902                | )          |   |   | $ | — |   |   |   | $ | 315 |   |   |   | $ | 112,236 |   |   |   |   |   |   |
| Exercise of stock  options                                 |       | 274                   |       |        | 3          |           |       |            | 1,341      |              |       |                   | —     |              |       |                   | —     |   |   |   | — |   |   |   | 1,344 |   |   |   |   |   |   |
| Stock issued in  acquisition                               |       | 100                   |       |        | 1          |           |       |            | 753        |              |       |                   | —     |              |       |                   | —     |   |   |   | — |   |   |   | 754 |   |   |   |   |   |   |
| Issuance of common  stock in employee stock purchase plan  |       | 172                   |       |        | 1          |           |       |            | 831        |              |       |                   | —     |              |       |                   | —     |   |   |   | — |   |   |   | 832 |   |   |   |   |   |   |
| Repurchase of  common stock                                |       | (63                   | )          |        | (1         | )              |       |            | (308       | )                 |       |                   | —     |              |       |                   | —     |   |   |   | — |   |   |   | (309 | ) |   |   |   |   |   |
| Foreign currency  translation adjustment gain              |       | —                |       |        | —     |           |       |            | —     |              |       |                   | —     |              |       |                   | —     |   |   |   | 361 |   |   |   | 361 |   |   |   | $ | 361 |   |   |
| Net loss                                                   |       | —                |       |        | —     |           |       |            | —     |              |       |                   | (10,513    | )                 |       |                   | —     |   |   |   | — |   |   |   | (10,513 | ) |   |   | (10,513 | ) |   |
| Balance at  March 31, 2004                            |       | 22,339                |       |        | 223        |           |       |            | 189,221    |              |       |                   | (85,415    | )                 |       |                   | —     |   |   |   | 676 |   |   |   | 104,705 |   |   |   | $ | (10,152 | ) |   |
| Exercise of stock  options                                 |       | 778                   |       |        | 8          |           |       |            | 3,621      |              |       |                   | —     |              |       |                   | —     |   |   |   | — |   |   |   | 3,629 |   |   |   |   |   |   |
| Stock issued and  options assumed in acquisition           |       | 4,203                 |       |        | 42         |           |       |            | 49,338     |              |       |                   | —     |              |       |                   | —     |   |   |   | — |   |   |   | 49,380 |   |   |   |   |   |   |
| Issuance of common  stock in employee stock purchase plan  |       | 156                   |       |        | 2          |           |       |            | 930        |              |       |                   | —     |              |       |                   | —     |   |   |   | — |   |   |   | 932 |   |   |   |   |   |   |
| Unearned  stock-based compensation                         |       | —                |       |        | —     |           |       |            | —     |              |       |                   | —     |              |       |                   | (895       | ) |   |   | — |   |   |   | (895 | ) |   |   |   |   |   |
| Reversal of  compensation expense for terminated employees |       | —                |       |        | —     |           |       |            | (97        | )                 |       |                   | —     |              |       |                   | 97         |   |   |   | — |   |   |   | — |   |   |   |   |   |   |
| Compensation  expense                                      |       | —                |       |        | —     |           |       |            | —     |              |       |                   | —     |              |       |                   | 329        |   |   |   | — |   |   |   | 329 |   |   |   |   |   |   |
| Foreign currency  translation adjustment gain              |       | —                |       |        | —     |           |       |            | —     |              |       |                   | —     |              |       |                   | —     |   |   |   | 290 |   |   |   | 290 |   |   |   | $ | 290 |   |   |
| Net loss                                                   |       | —                |       |        | —     |           |       |            | —     |              |       |                   | (5,841     | )                 |       |                   | —     |   |   |   | — |   |   |   | (5,841 | ) |   |   | (5,841 | ) |   |
| Balance at  March 31, 2005                            |       | 27,476                |       |        | 275        |           |       |            | 243,013    |              |       |                   | (91,256    | )                 |       |                   | (469       | ) |   |   | 966 |   |   |   | 152,529 |   |   |   | $ | (5,551 | ) |   |
| Exercise of stock  options                                 |       | 1,547                 |       |        | 15         |           |       |            | 8,378      |              |       |                   | —     |              |       |                   | —     |   |   |   | — |   |   |   | 8,393 |   |   |   |   |   |   |
| Issuance of common  stock in employee stock purchase plan  |       | 146                   |       |        | 1          |           |       |            | 1,048      |              |       |                   | —     |              |       |                   | —     |   |   |   | — |   |   |   | 1,049 |   |   |   |   |   |   |
| Stock issued in  acquisition                               |       | 274                   |       |        | 3          |           |       |            | 2,005      |              |       |                   | —     |              |       |                   | —     |   |   |   | — |   |   |   | 2,008 |   |   |   |   |   |   |
| Reversal of  compensation expense for terminated employees |       | —                |       |        | —     |           |       |            | (63        | )                 |       |                   | —     |              |       |                   | 63         |   |   |   | — |   |   |   | — |   |   |   |   |   |   |
| Compensation  expense                                      |       | —                |       |        | —     |           |       |            | —     |              |       |                   | —     |              |       |                   | 283        |   |   |   | — |   |   |   | 283 |   |   |   |   |   |   |
| Dividend ($0.03  per share)                                |       | —                |       |        | —     |           |       |            | —     |              |       |                   | (879       | )                 |       |                   | —     |   |   |   | — |   |   |   | (879 | ) |   |   |   |   |   |
| Foreign currency  translation adjustment loss              |       | —                |       |        | —     |           |       |            | —     |              |       |                   | —     |              |       |                   | —     |   |   |   | (769 | ) |   |   | (769 | ) |   |   | $ | (769 | ) |   |
| Net income                                                 |       | —                |       |        | —     |           |       |            | —     |              |       |                   | 6,342      |              |       |                   | —     |   |   |   | — |   |   |   | 6,342 |   |   |   | 6,342 |   |   |
| Balance at March 31,  2006                            |       | 29,443                |       |        | $          | 294            |       |            |       | $                 | 254,381    |                   |       |              | $          | (85,793                | )          |   |   | $ | (123 | ) |   |   | $ | 197 |   |   |   | $ | 168,956 |   |   |   | $ | 5,573 |   |   |

 

The accompanying notes are an integral part of the consolidatedfinancial statements.

16

 

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**STELLENT, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)**

| ** **                                                                                            | ** ** | **Year Ended March 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                                            | ** ** | **2004**                                | ** ** | **2005** | ** ** | **2006** | ** ** |
| Operating activities:                                                                                 |       |                                    |       |   |   |   |   |
| Net income (loss)                                                                                     |       | $                                       | (10,513    | ) | $ | (5,841 | ) | $ | 6,342 |   |
| Adjustments to reconcile net income (loss) to cash  flows provided by (used in) operating activities: |       |                                    |       |   |   |   |   |
| Depreciation and  amortization                                                                        |       | 3,369                                   |       | 3,481 |   | 3,118 |   |
| Amortization of acquired  intangible assets and other                                                 |       | 3,580                                   |       | 3,067 |   | 2,505 |   |
| Impairment charge on  fixed assets                                                                    |       | —                                  |       | 451 |   | — |   |
| Lease incentives                                                                                      |       | —                                  |       | — |   | 1,043 |   |
| Changes in operating assets and liabilities, net of  amounts acquired:                                |       |                                    |       |   |   |   |   |
| Trade accounts  receivable, net                                                                       |       | (3,563                                  | )          | (8,102 | ) | (1,196 | ) |
| Prepaid expenses and  other current assets                                                            |       | (692                                    | )          | 2,354 |   | (183 | ) |
| Accounts payable                                                                                      |       | 461                                     |       | 756 |   | (730 | ) |
| Accrued commissions and  other liabilities                                                            |       | 1,067                                   |       | 1,157 |   | 1,478 |   |
| Deferred revenue                                                                                      |       | 870                                     |       | 4,458 |   | 548 |   |
| Investment impairment  (gain on sale)                                                                 |       | (388                                    | )          | 1,136 |   | — |   |
| Net cash flows provided  by (used in) operating activities                                            |       | (5,809                                  | )          | 2,917 |   | 12,925 |   |
| Investing activities:                                                                                 |       |                                    |       |   |   |   |   |
| Maturities (purchases)  of marketable securities, net                                                 |       | 14,383                                  |       | 10,857 |   | (23,375 | ) |
| Business acquisitions,  net of cash acquired                                                          |       | (2,184                                  | )          | (11,094 | ) | (5,453 | ) |
| Purchases of property  and equipment                                                                  |       | (2,263                                  | )          | (1,934 | ) | (5,490 | ) |
| Purchase of intangibles                                                                               |       | —                                  |       | — |   | (84 | ) |
| Proceeds from sale of  investment in other companies                                                  |       | 388                                     |       | — |   | — |   |
| Other                                                                                                 |       | (17                                     | )          | — |   | — |   |
| Net cash flows provided  by (used in) investing activities                                            |       | 10,307                                  |       | (2,171 | ) | (34,402 | ) |
| Financing activities:                                                                                 |       |                                    |       |   |   |   |   |
| Repurchase of common  stock                                                                           |       | (309                                    | )          | — |   | — |   |
| Issuance of common stock                                                                              |       | 832                                     |       | 932 |   | 1,049 |   |
| Proceeds from stock  options and warrants                                                             |       | 1,344                                   |       | 3,629 |   | 8,393 |   |
| Payments under capital  leases                                                                        |       | —                                  |       | (649 | ) | (558 | ) |
| Cash dividend paid                                                                                    |       | —                                  |       | — |   | (879 | ) |
| Net cash flows provided  by financing activities                                                      |       | 1,867                                   |       | 3,912 |   | 8,005 |   |
| Effect of exchange rate  changes on cash and equivalents                                              |       | 361                                     |       | 290 |   | (900 | ) |
| Net increase (decrease)  in cash                                                                      |       | 6,726                                   |       | 4,948 |   | (14,372 | ) |
| Cash and equivalents at  beginning of year                                                            |       | 37,439                                  |       | 44,165 |   | 49,113 |   |
| Cash and equivalents at  end of year                                                                  |       | $                                       | 44,165     |   | $ | 49,113 |   | $ | 34,741 |   |
| Supplemental disclosure of cash flows information:                                                    |       |                                    |       |   |   |   |   |
| Cash paid for interest                                                                                |       | $                                       | —     |   | $ | 24 |   | $ | 31 |   |
| Non-cash investing and financing activities:                                                          |       |                                    |       |   |   |   |   |
| Common stock issued in  business acquisitions                                                         |       | $                                       | 754        |   | $ | 41,416 |   | $ | 2,008 |   |
| Assumption of stock  option plan related to business combination                                      |       | —                                  |       | 7,964 |   | — |   |
| Purchase of equipment through capital leases                                                          |       | —                                  |       | 819 |   | 1,142 |   |

 

The accompanying notes are an integral part of the consolidated financial statements.

17

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**STELLENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share data)**

**1.   Summary ofSignificant Accounting Policies**

Stellent, Inc. (the “Company”) develops, markets,and services content management software with the primary focus of helpingorganizations derive maximum value from their content that exists in the normalcourse of business such as Microsoft Office documents, web pages, images,graphics, multimedia, CAD, and other files. With headquarters in Eden Prairie,Minnesota, the Company maintains offices throughout the United States and therest of the world. The Company’s customers are also located throughout theUnited States and the rest of the world.

*Principlesof Consolidation:*   The consolidated financialstatements include the accounts of the Company and its wholly ownedsubsidiaries. All significant intercompany transactions and balances have beeneliminated.

*RevenueRecognition:*   The Company currently derives allof its revenues from licenses of software products and related services. TheCompany recognizes revenue in accordance with Statement of Position (SOP) 97-2,*Software Revenue Recognition,*asamended by SOP 98-9, *Modification ofSOP 97-2, Software Revenue Recognition with Respect to CertainTransactions,*and Securities and Exchange Commission StaffAccounting Bulletin 104, *RevenueRecognition.*

Product license revenue is recognized under SOP 97-2when (i) persuasive evidence of an arrangement exists, (ii) deliveryhas occurred, (iii) the fee is fixed or determinable, and (iv) collectibilityis probable and supported and the arrangement does not require additionalservices or modifications that are essential to the functionality of thesoftware.

*Persuasive Evidence of an ArrangementExists—*The Company determines that persuasive evidence of anarrangement exists with respect to a customer under i) a signature licenseagreement, which is signed by both the customer and the Company, or ii) apurchase order, quote or binding letter-of-intent received from and signed bythe customer, in which case the customer has either previously executed asignature license agreement with the Company or will receive a shrink-wraplicense agreement with the software. The Company does not offer product returnrights to end users or resellers.

*Delivery has Occurred—*TheCompany’s software may be either physically or electronically delivered to thecustomer. The Company determines that delivery has occurred upon shipment ofthe software pursuant to the billing terms of the arrangement or when thesoftware is made available to the customer through electronic delivery.Customer acceptance generally occurs at delivery.

*The Fee is Fixed or Determinable—*Ifat the outset of the customer arrangement, the Company determines that thearrangement fee is not fixed or determinable, revenue is typically recognizedwhen the arrangement fee becomes due and payable. Fees due under an arrangementare generally deemed fixed and determinable if they are payable within twelvemonths.

*Collectibilityis Probable and Supported—*The Company determines whethercollectibility is probable and supported on a case-by-case basis. The Companymay generate a high percentage of its license revenue from its current customerbase, for whom there is a history of successful collection. The Companyassesses the probability of collection from new customers based upon the numberof years the customer has been in business and a credit review process, whichevaluates the customer’s financial position and ultimately their ability topay. If the Company is unable to determine from the 

18

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**STELLENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data)**

outset of an arrangementthat collectibility is probable based upon its review process, revenue isrecognized as payments are received.

With regard to softwarearrangements involving multiple elements, the Company allocates revenue to eachelement based on the relative fair value of each element. The Company’sdetermination of fair value of each element in multiple-element arrangements isbased on vendor-specific objective evidence (“VSOE”). The Company limits itsassessment of VSOE for each element to the price charged when the same elementis sold separately. The Company has analyzed all of the elements included inits multiple-element arrangements and has determined that it has sufficientVSOE to allocate revenue to consulting services and post-contract customersupport (“PCS”) components of its license arrangements. The Company sells itsconsulting services separately, and has established VSOE on this basis. VSOEfor PCS is determined based upon the customer’s annual renewal rates for theseelements. Accordingly, assuming all other revenue recognition criteria are met,revenue from perpetual licenses is recognized upon delivery using the residualmethod in accordance with SOP 98-9, and revenue from PCS is recognizedratably over their respective terms, typically one year.

The Company’s directcustomers typically enter into perpetual license arrangements. The Company’sOEM group generally enters into term-based license arrangements with itscustomers, the term of which generally exceeds one year in length. The Companyrecognizes revenue from time-based licenses at the time the license arrangementis signed, assuming all other revenue recognition criteria are met, if the termof the time-based license arrangement is greater than twelve months. If theterm of the time-based license arrangement is twelve months or less, theCompany recognizes revenue ratably over the term of the license arrangement.

Services revenue consistsof fees from consulting services, PCS and out-of-pocket expenses reimbursed bythe Company. Consulting services include needs assessment, softwareintegration, security analysis, application development and training. TheCompany bills consulting services fees either on a time and materials basis oron a fixed-price schedule. In general, the Company’s consulting services arenot essential to the functionality of the software. The Company’s softwareproducts are fully functional upon delivery and implementation and generally donot require any significant modification or alteration for customer use.Customers purchase the Company’s consulting services to facilitate the adoptionof the Company’s technology and may dedicate personnel to participate in theservices being performed, but they may also decide to use their own resourcesor appoint other professional service organizations to provide these services.Software products are billed separately from professional services. The Companyrecognizes revenue from consulting services as services are performed. TheCompany’s customers typically purchase PCS annually, and prices PCS based on apercentage of the product license fee. Customers purchasing PCS receive productupgrades, Web-based technical support and telephone hot-line support.Unspecified product upgrades are not provided without the purchase of PCS. TheCompany typically has not granted specific upgrade rights in its licenseagreements. Specified undelivered elements are allocated a relative fair valueamount within a license agreement and the revenue allocated for these elementsare deferred until delivery occurs.

Customer advances andbilled amounts due from customers in excess of revenue recognized are recordedas deferred revenue.

*Cost of Revenues:*   TheCompany expenses all manufacturing, packaging and distribution costs associatedwith product license revenue as cost of revenues. The Company expenses alltechnical support 

19

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**STELLENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data)**

service costsassociated with service revenue as cost of revenues. The Company also expensesamortization of capitalized software from acquisitions as cost of revenues. TheCompany reports out-of-pocket expenses reimbursed by customers as revenue andthe corresponding expenses incurred as costs of revenues.

*Cashand Equivalents:*   The Company considers allshort-term, highly liquid investments that are readily convertible into knownamounts of cash and have original maturities of three months or less to be cashequivalents. At March 31, 2005 and 2006, $7,311 and $6,664 was held at variousfinancial institutions located in Europe and other foreign countries.

*MarketableSecurities:*   Investments in debt securities witha remaining maturity of one year or less at the date of purchase are classifiedas short-term marketable securities. Investments in debt securities with aremaining maturity of greater than one year are classified as long-termmarketable securities. All marketable securities are classified as held tomaturity and recorded at amortized cost as the Company has the ability andpositive intent to hold to maturity. At March 31, 2005 and 2006, costapproximated market value of these investments. Purchases of investments were$184,108, $201,537 and $271,165 for the years ended March 31, 2004, 2005and 2006, respectively. Maturities of investments were $198,491, $212,394 and$247,790 for the years ended March 31, 2004, 2005 and 2006, respectively.The contractual maturities of the marketable securities held at March 31,2006 are $29,900 in fiscal 2007 and $17,112 in fiscal years thereafter.

At March 31,2006, short and long-term marketable securities consisted of the following:

| ** **                        | ** ** | **U.S. government and  agency securities** | ** ** | **Corporate  debt securities** | ** ** | **Total** | ** ** |
|-----------------------------------|------------|-----------------------------------------------------------|------------|-------------------------------------|------------|-----------|------------|
| Short-term  marketable securities |       |                                                      | $          | 7,688                               |       |      |       | $ | 22,212 |   |   | $ | 29,900 |   |
| Long-term marketable  securities  |       |                                                      | $          | —                              |       |      |       | $ | 17,112 |   |   | $ | 17,112 |   |

* *

*Investmentsin and Notes with Other Companies:*   Investmentsin other equity securities and related notes with other companies in thesoftware industry are classified as long-term as the Company anticipatesholding them for more than one year. The Company holds less than 20% interestin, and does not directly or indirectly exert significant influence over any ofthe respective investees.

Investments in other companies include investments inseveral non-public, start-up technology companies for which the Company usesthe cost method of accounting. During fiscal 2005, the Company determined,based on its review of the financial statements of such other companies,incremental financing that they received, discussions of business plans andforecasts with other companies’ executives and judgments and assumptions aboutthe respective other companies’ industry, as well as the U.S. and worldeconomies in general, that a permanent decline in value of certain investmentshad occurred and recorded a $1,136 write-down on the investments in andadvances to the companies. No permanent decline in value of investmentsoccurred during fiscal years 2004 or 2006.

*AccountsReceivable:*   Accounts receivable are presentednet of allowances of $803 and $828 as of March 31, 2005 and 2006. TheCompany’s accounts receivable balances are due from companies across a broadrange of industries—Government, Finance, Manufacturing, Consumer, Aerospace andTransportation, Health Care/Insurance, and High Tech/Telecom. Credit isextended based on evaluation of a customer’s financial condition and,generally, collateral is not required. Accounts receivable from sales ofservices are typically due from customers within 30 days and accountsreceivable from sales of licenses 

20

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**STELLENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data)**

are due over terms rangingfrom 30 days to twelve months. Accounts receivable balances are stated atamounts due from customer net of an allowance for doubtful accounts. Accountsoutstanding longer than the contractual payments terms are considered past due.The Company determines its allowance by considering a number of factors,including the length of time trade receivables are past due, the Company’sprevious loss history, the customer’s current ability to pay its obligation tothe Company, and the condition of the general economy and the industry as awhole. The Company writes-off accounts receivable when they becomeuncollectible, and payments subsequently received on such receivables arecredited to the allowance for doubtful accounts.

No customer accounted for 10% or more of the Company’srevenues in the years ended March 31, 2004, 2005, and 2006.

*Propertyand Equipment:*   Property and equipment, includingleasehold improvements, are recorded at cost. Maintenance, repairs and minorrenewals are expensed when incurred. Depreciation of property and equipment iscomputed using the straight-line method over the estimated useful lives of theassets, ranging from two to eight years, or the life of the lease for leaseholdimprovements, whichever is shorter. Equipment under capital leases isdepreciated to its expected value at the end of the lease term. Fully depreciated assets are retained in the assetand accumulated depreciation accounts until disposal. Upon disposal, assets andrelated accumulated depreciation are removed from the accounts and the netamount, less proceeds from disposal, is charged or credited to operations.Property and equipment amounts are reviewed for impairment whenever events orchanges in circumstances indicate that the carrying amount of an asset (assetgroup) may not be recoverable. An impairment loss would be recognized when thecarrying amount of an asset exceeds the estimated undiscounted future cashflows expected to result from the use of the asset and its eventualdisposition. The amount of the impairment loss to be recorded is calculated bythe excess of the asset’s carrying value over its fair value. Fair value isgenerally determined using a discounted cash flow analysis. Duringfiscal year 2005, the Company completed a physical inventory of our fixedassets which includes equipment, furniture and leasehold improvement on itsleased facilities. As a result of this physical inventory, the Companyidentified certain fixed assets which had been either decommissioned and had novalue or were physically disposed of during the fourth quarter of fiscal year2005. The Company recorded an impairment charge of $375 which represented theremaining net book value of these assets as of March 31, 2005. Noimpairment charge occurred during fiscal years 2004 or 2006.

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**STELLENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data)**

*Goodwill:**  *Goodwill is the excess of cost ofan acquired entity over the amounts assigned to assets acquired and liabilitiesassumed in a business combination. Goodwill is not amortized. Goodwill istested for impairment annually, and will be tested for impairment betweenannual tests if an event occurs or circumstances change that would indicate thecarrying amount may be impaired. Impairment testing for goodwill is done at areporting unit level. Reporting units are one level below the business segmentlevel, but can be combined when reporting units within the same segment havesimilar economic characteristics. The Company has determined that there are tworeporting units. The Company performed and completed its required annualimpairment testing on January 1, 2006. Upon completing a reviewinternally, the Company determined that the carrying value of its recordedgoodwill as of this date had not been impaired and no impairment charge wasrecorded. No circumstances occurred during the fourth quarter of fiscal year 2006which would have created an impairment loss at March 31, 2006. The changesin the carrying amount of goodwill for the years ended March 31, 2005 and2006 was as follows:

| ** **                                                   | ** ** | **March 31,** | ** ** |
|--------------------------------------------------------------|------------|--------------------|------------|
| ** **                                                   | ** ** | **2005**           | ** ** | **2006** | ** ** |
| Beginning of the  year                                       |       | $                  | 14,780     |   | $ | 67,640 |   |
| Acquisition of  Optika                                       |       | 51,155             |       | 131 |   |
| Acquisition of Stellent,  S.A. De C.V.                       |       | 1,158              |       | 100 |   |
| Acquisition of  Ancept                                       |       | 367                |       | 146 |   |
| Acquisition of Stellent  Information Systems Company Limited |       | 180                |       | — |   |
| Acquisition of  e-Onehundred Group                           |       | —             |       | 6,405 |   |
| Other                                                        |       | —             |       | (13 | ) |
| End of the year                                              |       | $                  | 67,640     |   | $ | 74,409 |   |

* *

*Other acquired intangibleassets:**  *Otheracquired intangible assets are assets acquired from an independent party. Theassets have no significant residual values. There are no other acquiredintangible assets which are not subject to amortization. The other acquiredintangible assets are tested for impairment whenever events or circumstancesindicate that a carrying amount of an asset (asset group) may not berecoverable. The Company has determined that no material impairments existed asof March 31, 2006. An impairment loss is recognized when the carryingamount of an asset exceeds the estimated undiscounted cash flows used indetermining the fair value of the asset. The amount of the impairment loss tobe recorded is calculated by the excess of the asset’s carrying value over itsfair value. Fair value is generally determined using a discounted cash flowanalysis. Other acquired intangible assets by major intangible asset class at March 31,2006 were as follows:

|                 | ** ** | **Acquired  Value** | ** ** | **Amortization  Period in Years** | ** ** |
|-----------------|------------|---------------------|------------|---------------------------------------------|------------|
| Core technology |       |                | $          | 3,690                                       |       |   | 3 |   |
| Customer base   |       |                | 3,039      |                                        |       | 3 to 10 |   |
|                 |       |                | $          | 6,729                                       |       |   | 5.34 weighted |   |
|                 |       |                |       |                                        |       | average years |   |

 

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**STELLENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data)**

Grosscarrying amounts and accumulated amortization of the acquired other intangibleswere as follows for each major intangible asset class:

| ** **      | ** ** | **As of March 31, 2005** | ** ** |
|-----------------|------------|----------------------------------------------|------------|
| ** **      | ** ** | **Gross Carrying  Amount**              | ** ** | **Accumulated  Amortization** | ** ** | **Net Balances** | ** ** |
| Core technology |       |                                         | $          | 4,991 |   |   |   | $ | (1,870 | ) |   |   | $ | 3,121 |   |   |
| Customer base   |       |                                         | 2,725      |   |   |   | (231 | ) |   |   | 2,494 |   |   |
|            |       |                                         | $          | 7,716 |   |   |   | $ | (2,101 | ) |   |   | $ | 5,615 |   |   |

 

| ** **      | ** ** | **As of March 31, 2006** | ** ** |
|-----------------|------------|----------------------------------------------|------------|
| ** **      | ** ** | **Gross Carrying  Amount**              | ** ** | **Accumulated  Amortization** | ** ** | **Net Balances** | ** ** |
| Core technology |       |                                         | $          | 3,690 |   |   |   | $ | (2,153 | ) |   |   | $ | 1,537 |   |   |
| Customer base   |       |                                         | 3,039      |   |   |   | (573 | ) |   |   | 2,466 |   |   |
|            |       |                                         | $          | 6,729 |   |   |   | $ | (2,726 | ) |   |   | $ | 4,003 |   |   |

 

Amortization expense for the years ended March 31,2004, 2005 and 2006 related to the acquired other intangible assets was $3,580,$2,738 and $2,222, respectively.

Estimatedamortization expense for other acquired intangible assets is as follows for theyears ending March 31:

| 2007       |   | $   | 1,593  |   |
|------------|--------|-----|--------|--------|
| 2008       |   | 644 |   |
| 2009       |   | 322 |   |
| 2010       |   | 278 |   |
| 2011       |   | 278 |   |
| Thereafter |   | 888 |   |
|       |   | $   | 4,003  |   |

* *

*SoftwareDevelopment Costs:*   Software development costsmay be capitalized once the technological feasibility of the project isestablished. The amount of software development costs that may be capitalizedis subject to limitations based on the net realizable value of the potential product.Typically the period between achieving technological feasibility of the Company’sproducts and the general availability of the products has been short. Nosoftware costs were capitalized during fiscal years 2005 and 2006.

In addition, capitalized software has included thefair value of certain acquired capitalized software costs (see Note 2).Amortization of developed capitalized software is determined annually as thegreater of the amount computed using the ratio of current gross revenues forthe products to their total of current and anticipated future gross revenues orthe straight-line method over the estimated economic life of the products.Capitalized software totaled $1,219 and accumulated amortization was $1,130 atMarch 31, 2005. At March 31, 2006 capitalized software andaccumulated amortization was zero. Amortization expense of developedcapitalized software is included in Cost of Revenues—Product Licenses.

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**STELLENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data)**

*Warranties:*   TheCompany generally warrants its software products for a period of 30 to 90 daysfrom the date of delivery and estimates probable product warranty costs at thetime revenue is recognized. The Company exercises judgment in determining itsaccrued warranty liability. Factors that may affect the warranty liabilityinclude historical and anticipated rates of warranty claims, material usage,and service delivery costs. Warranty costs incurred to date have not beenmaterial.

*IndemnificationObligations:*   The Company generally provides toits customers intellectual property indemnification obligations in its softwareproducts or services. Typically these obligations provide that the Company willindemnify, defend and hold the customers harmless against claims by thirdparties that its software products or services infringe upon the copyrights,trademarks, patents or trade secret rights of such third parties. No such claimhas been made by any third party with regard to the Company’s software productsor services.

*Translationof Foreign Currencies:*   Foreign currency assetsand liabilities of the Company’s international subsidiaries are translatedusing the exchange rates in effect at the balance sheet date. Results ofoperations are translated using the average exchange rates prevailingthroughout the year. The effects of exchange rate fluctuations on translatingforeign currency assets and liabilities into U.S. dollars are accumulated aspart of the foreign currency translation adjustment in shareholders’ equity.

*Reclassifications:*   Certainprior year amounts have been reclassified to conform to the current yearpresentation.

*ComprehensiveIncome (Loss):*   Comprehensive income (loss) asdefined by Statement of Financial Accounting Standards (“SFAS”) No. 130, *Reporting Comprehensive Income*, includes net income (loss)and items defined as other comprehensive income (loss). SFAS No. 130requires that items defined as other comprehensive income (loss), such asforeign currency translation adjustments and unrealized gains and losses on theCompany’s available for sale securities, be separately classified in thefinancial statements. Such items are reported in the consolidated statements ofshareholders’ equity as comprehensive income (loss)

*Advertising:*   TheCompany expenses the cost of advertising as it is incurred. Advertising expensefor the years ended March 31, 2004, 2005 and 2006 was $4,362, $5,095 and$4,890, respectively.

The Company enters into cooperative advertisingprograms with some of its resellers, and when the Company receives anidentifiable benefit in return for consideration, and the Company canreasonably estimate the fair value of the benefit received, the cooperativeadvertising is accounted for as advertising expense. If the fair value cannotbe estimated or an identifiable benefit is not received, the cooperativeadvertising is accounted for as a reduction of revenue.

*Researchand Development:*   These costs are charged tooperations in the year incurred and are shown on a separate line of theConsolidated Statements of Operations. Research and development expenses,covering basis technology research and the application of technology advancesto the development of new and improved products, totaled $13,263, $17,958 and$20,153 for the years ended March 31, 2004, 2005 and 2006, respectively.

*Netincome (Loss) per Common Share:*   The differencein the weighted average shares outstanding for calculating basic and diluted netincome (loss) per share is attributable to the dilution associated with theCompany’s stock-based compensation plans. The Company’s basic net income (loss)per share amounts 

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**STELLENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data)**

have been computed bydividing net income (loss) by the weighted average number of outstanding commonshares. The Company’s diluted net income (loss) per share is computed bydividing net income (loss) by the weighted average number of outstanding commonshares and common share equivalents relating to stock options and warrants,when dilutive. For the years ended March 31, 2004 and 2005, the Companyincurred net losses and therefore, basic and diluted per share amounts are thesame. For the year ended March 31, 2006 the Company incurred net incomeand therefore the dilution associated with the Company’s stock-basedcompensation plans was 1,349.

*IncomeTaxes:*   The provision for income taxes isdetermined using the asset and liability approach. Under this approach,deferred income taxes represent the expected future tax consequences oftemporary differences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for income tax purposes. TheCompany records a valuation allowance to reduce its deferred tax assets whenuncertainty regarding their realization exists. As of March 31, 2006 and2005 a valuation allowance of $73,147 and $71,098, respectively were recorded.See Note 8 to the Consolidated Financial Statements.

*Stock-based Compensation:*   TheCompany has stock option plans for employees and a separate stock option planfor directors, which are described more fully in Note 5. The intrinsic valuemethod is used to value the stock options issued to employees and directors,and the Company accounts for those plans under the recognition and measurementprinciples of Financial Accounting Standards Board (“FASB”), APB Opinion No. 25,*Accounting for Stock Issued to Employees*,and complies with the disclosure provisions of SFAS No. 123, *Accounting for Stock-Based Compensation*, and SFAS No. 148,*Accounting for Stock-Based Compensation-Transitionand Disclosure-an amendment of FASB Statement No. 123*. TheCompany has adopted the disclosure requirements of SFAS No. 148 in thesenotes to the consolidated financial statements. In the years presented, nostock-based employee compensation cost is reflected in net income (loss),excluding the amortization of unearned compensation expense related to theOptika transaction recognized in fiscal year 2005, as all options granted underthose plans had an exercise price equal to the market value of the underlyingcommon stock on the date of grant. Had the fair value method been applied, thecompensation expense would have been different in the periods presented. The followingtable illustrates the effect on net income (loss) and net income(loss) per share if the Company had applied the fair value method for thefollowing periods:

| ** **                                                                                                      | ** ** | **Years Ended March 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **2004**                                 | ** ** | **2005** | ** ** | **2006** | ** ** |
| Net income  (loss)—as reported                                                                             |       | $ (10,513                           | )          | $ (5,841 | ) | $ 6,342 |   |
| Add: Stock-based  compensation included in net income (loss) as reported                                        |       | —                                   |       | 329 |   | 283 |   |
| Less: Total  stock-based employee compensation expense determined under fair value based  method for all awards |       | (8,711                                   | )          | (11,828 | ) | (7,003 | ) |
| Net loss—pro forma                                                                                         |       | $ (19,224                           | )          | $ (17,340 | ) | $  (378 | ) |

 

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**STELLENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data)**

 

| ** **                                | ** ** | **Years Ended March 31,** | ** ** |
|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                                | ** ** | **2004**                                 | ** ** | **2005** | ** ** | **2006** | ** ** |
| Weighted average shares  outstanding:     |       |                                     |       |   |   |   |   |
| Basic                                     |       | 22,028                                   |       | 26,224 |   | 28,266 |   |
| Diluted                                   |       | 22,028                                   |       | 26,224 |   | 29,615 |   |
| Net income (loss) per  share as reported: |       |                                     |       |   |   |   |   |
| Basic                                     |       | $ (0.48                             | )          | $ (0.22 | ) | $   0.22 |   |
| Diluted                                   |       | $ (0.48                             | )          | $ (0.22 | ) | $   0.21 |   |
| Net loss per share pro  forma:            |       |                                     |       |   |   |   |   |
| Basic                                     |       | $ (0.87                             | )          | $ (0.66 | ) | $ (0.01 | ) |
| Diluted                                   |       | $ (0.87                             | )          | $ (0.66 | ) | $ (0.01 | ) |

 

The weightedaverage fair value of options granted under the stock options plans duringfiscal years 2004, 2005 and 2006 was $4.41, $5.55 and $3.24, per sharerespectively. The weighted average of the employee stock purchase shares forfiscal years 2004, 2005 and 2006 was $2.30, $2.01 and $2.27, respectively. TheCompany amortizes the fair value of compensation using the straight-line methodover the vesting term. Pro forma information regarding the fair value of stockoptions is determined at the date of grant using the Black-Scholesoption-pricing model with the following weighted-average assumptions:

Employeebased stock option plans:

| ** **                                                                | ** ** | **Years Ended March 31,** |
|---------------------------------------------------------------------------|------------|------------------------------------------|
| ** **                                                                | ** ** | **2004**                                 | ** ** | **2005** | ** ** | **2006** |
| Risk free  interest yields                                                |       | 2% -  5.5%                               |   | 3.3%  - 3.6% |   | 3.7%  - 4.6% |
| Dividend yield                                                            |       | —                                   |   | — |   | — |
| Volatility factor  of expected market price of Company’s stock  |       | 95%                                      |   | 70%  - 95% |   | 46%  - 58% |
| Weighted average  expected life of options (years)                        |       | 3.25                                     |   | 3.00 - 3.25 |   | 3.00 |

 

Employee stock purchase plan:

| ** **                                                                | ** ** | **Years Ended March 31,** | ** ** |
|---------------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                | ** ** | **2004**                                 | ** ** | **2005** | ** ** | **2006** | ** ** |
| Risk free  interest yields                                                |       | 1.0%  - 1.1%                             |       | 1.3%  - 2.2% |   | 3.2%  - 4.0% |   |
| Dividend yield                                                            |       | —                                   |       | — |   | — |   |
| Volatility factor  of expected market price of Company’s stock  |       | 83%                                      |       | 45% |   | 45%  - 50% |   |
| Weighted average  expected life of options (years)                        |       | 0.5                                      |       | 0.5 |   | 0.5 |   |

 

In December 2004, FASB issued SFAS No. 123(revised 2004),*Share-Based Payment,*known as Statement 123(R). Statement 123(R) supersedes APB Opinion No. 25.Under APB Opinion No. 25, no compensation expense is recognized foremployee stock option grants if the exercise price of the Company’s stockoption grants is at or above the fair market value of the underlying stock onthe date of grant. SFAS No. 123(R) requires the determination of the fairvalue of the share-based compensation at the grant date and the recognition ofthe related expense over the period in which the share-based compensationvests. The original effective date for SFAS No. 123(R) for the Company wasJuly 1, 2005. However, on April 14, 2005, the Securities and ExchangeCommission (SEC) adopted a new rule that 

26

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**STELLENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data)**

amends the effective datesfor SFAS No. 123(R). The SEC’s new rule allows companies to implementSFAS No. 123(R) at the beginning of their next fiscal year, instead of thenext reporting period, that begins after June 15, 2005. Therefore, theCompany adopted SFAS No. 123(R) effective April 1, 2006. As part ofthis adoption, the Company began expensing options effective April 1, 2006and has elected not to restate the prior period results. Based on the currentamount of outstanding stock options that will vest on or after April 1,2006, the Company anticipates recognizing $4,000 to $6,000 of compensationexpense during fiscal year 2007. This amount will fluctuate depending on futurestock options granted to or forfeited by employees and directors.

*FairValue of Financial Instruments:*   The Company’sfinancial instruments including cash and cash equivalents, short-termmarketable securities, long-term marketable securities, accounts receivable andaccounts payable, and are carried at cost, which approximates fair value due tothe short-term maturity of these instruments.

*Useof Estimates:*   The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.Actual results could differ from those estimates.

*NewAccounting Pronouncements:*   In November 2005,the FASB issued FASB Staff Position (FSP) FAS 115-1,*The Meaning of Other-Than-Temporary Impairment andIts Application to Certain Investments*. The guidance in this FSPaddresses the determination of when an investment is considered impaired,whether that impairment is other-than-temporary, and the measurement of animpairment loss. The FSP also includes accounting considerations subsequent tothe recognition of an other-than-temporary impairment and requires certaindisclosures about unrealized losses that have not been recognized asother-than-temporary impairments. The guidance in this FSP amends FASBStatement No. 115,*Accounting forCertain Investments in Debt and Equity Securities*. The guidance inthis FSP nullifies certain requirements of EITF Issue No. 03-1,*The Meaning of Other-Than-Temporary Impairment andIts Application to Certain Investments*, and supersedes*EITF Abstracts*, Topic D-44,*Recognition of Other-Than-Temporary Impairment uponthe Planned Sale of a Security Whose Cost Exceeds Fair Value*. Theguidance in this FSP is required to be applied to reporting periods beginningafter December 15, 2005. The Company adopted this Staff Position duringfiscal year 2006 and it did not have a material impact on its consolidatedfinancial statements.

In May 2005, the FASB issued SFAS No. 154,*Accounting Changes and Error Corrections.*This new standard replaces APB Opinion No. 20,*Accounting Changes*, and FASB Statement No. 3,*Reporting Accounting Changes in Interim FinancialStatements*. Among other changes, SFAS No. 154 requires that avoluntary change in accounting principle be applied retrospectively with allprior period financial statements presented on the new accounting principle,unless it is impracticable to do so. SFAS No. 154 also provides that (1) achange in method of depreciating or amortizing a long-lived nonfinancial assetbe accounted for as a change in estimate (prospectively) that was effectedby a change in accounting principle, and (2) correction of errors inpreviously issued financial statements should be termed a restatement. The newstandard is effective for accounting changes and correction of errors made infiscal years beginning after December 15, 2005. The Company adopted theprovisions of SFAS No. 154 and it did not have a material impact on theCompany’s consolidated financial statements.

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**STELLENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data)**

In December 2004,FASB issued SFAS No. 123 (revised 2004),*Share-Based Payment,* known as Statement 123(R). Statement 123(R) supersedesAPB Opinion No. 25. Under APB Opinion No. 25, no compensation expenseis recognized for employee stock option grants if the exercise price of theCompany’s stock option grants is at or above the fair market value of theunderlying stock on the date of grant. SFAS No. 123(R) requires thedetermination of the fair value of the share-based compensation at the grantdate and the recognition of the related expense over the period in which theshare-based compensation vests. The original effective date for SFAS No. 123(R)for the Company was July 1, 2005. However, on April 14, 2005, SECadopted a new rule that amends the effective dates for SFAS No. 123(R).The SEC’s new rule allows companies to implement SFAS No. 123(R) atthe beginning of their next fiscal year, instead of the next reporting period,that begins after June 15, 2005. Therefore, the Company adopted SFAS No. 123(R)effective April 1, 2006. As part of this adoption, the Company beganexpensing options effective April 1, 2006 and has elected not to restatethe prior period results. Based on the current amount of outstanding stockoptions that will vest on or after April 1, 2006, the Company anticipatesrecognizing $4,000 to $6,000 of compensation expense during fiscal year 2007.This amount will fluctuate depending on future stock options granted to orforfeited by employees and directors.

**2. Business Combinations**

Fiscalyear 2006 acquisition:

On June 20,2005, the Company acquired certain assets of privately held e-Onehundred Group,a financial compliance solutions provider, for $5,000 in cash and274 shares of the Company’s stock valued at $2,008. The Company alsoincurred approximately $291 in professional fees and other costs directlyassociated with this acquisition. Approximately $6,405 of the purchase pricewas allocated to goodwill, $520 was allocated to other acquired intangibleassets (core technology and customer base, which both will be amortized over athree year period), $551 was allocated to assets acquired and $177 wasallocated to liabilities assumed in the acquisition. The Company is alsorequired to make earn-out payments of potentially $2,000 based upon revenueperformance over a one-year period from the date of acquisition. As of March 31,2006 the Company has not made an earn-out payment. Future earn-out payments areestimated to be $1,500 for the fiscal year ended March 31, 2007.Additional pro forma disclosures required under SFAS No. 141 related tothis acquisition were not considered material.

Fiscal year 2005acquisitions:

On May 13, 2004, theCompany acquired the outstanding shares of Stellent, S.A. De C.V. forapproximately $750 in cash and assumed liabilities of $274, creating a businesspresence in Mexico. The Company was required to make contingent considerationpayments (earn out) for two years from the date of acquisition. Earn outamounts cannot exceed $300 in the first year and $450 in the second year afterthe acquisition which will be recorded as goodwill. During fiscal year 2005 andfiscal year 2006, $134 and $100, respectively, was accrued and recorded asgoodwill related to this earn out. The Company does not anticipate anyadditional earn out to be paid related to this acquisition. Additional proforma disclosures required under SFAS No. 141, related to this acquisitionwere not considered material.

On May 28, 2004, theCompany acquired all outstanding shares of Optika Inc. for $10,000 in cash,approximately 4,203 shares of the Company’s common stock valued at $41,416, theassumption of Optika’s outstanding common stock options, and direct acquisitioncosts of approximately $1,594. The Company acquired Optika in order to add to,or strengthen and expand, its Universal Content Management software 

28

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**STELLENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data)**

in theareas of document imaging, business process management and compliancecapabilities. The valuation of the Company’s stock was set at an average priceat the time the merger agreement was signed, which was January 11, 2004.The fair value of Optika’s option plan of $7,964 was estimated as of January 11,2004 using the Black-Scholes option-pricing model with the followingassumptions: no estimated dividends, expected volatility of 95%, risk freeinterest rate of 2.5% and expected option terms of 3 years for alloptions.

Thetotal estimated purchase price was allocated to Optika’s net tangible andidentifiable intangible assets based upon their estimated fair values as of thedate of completion of the acquisition. The excess of the purchase price overthe net tangible and identifiable intangible assets has been recorded asgoodwill. A restructuring plan was adopted as a result of the acquisition. The acquisitionrestructuring charge relates to severance costs for terminated employees of$596 and facility closing costs of $263 primarily related to lease obligationsand was included in the cost of the acquisition. During fiscal year 2006, theCompany paid out the remaining amounts of $210 and $66 in severance andfacility costs, respectively. Based upon the purchase price and valuation, thefollowing represents the allocation of the aggregate purchase price to theacquired net assets of Optika:

| Purchase price:                                         |   |          |   |   |
|---------------------------------------------------------|--------|---------------|--------|--------|
| Cash                                                    |   | $ 10,000 |   |   |
| Transaction costs                                       |   | 1,594         |   |   |
| Value of common  stock issued                           |   | 41,416        |   |   |
| Value of stock  option grants                           |   | 7,964         |   |   |
| Total purchase  consideration paid                      |   | $ 60,974 |   |   |
| Fair value of  assets acquired and liabilities assumed: |   |          |   |   |
| Cash                                                    |   | $ 7,460  |   |   |
| Accounts  receivable                                    |   | 2,912         |   |   |
| Fixed assets                                            |   | 460           |   |   |
| Other assets                                            |   | 660           |   |   |
| Accounts payable                                        |   | (313          | )      |   |
| Accrued expenses                                        |   | (1,433        | )      |   |
| Deferred revenue                                        |   | (6,194        | )      |   |
| Acquisition  restructuring charge                       |   | (859          | )      |   |
| Goodwill                                                |   | 51,286        |   |   |
| Identifiable  intangible assets                         |   | 6,100         |   |   |
| Unearned  compensation                                  |   | 895           |   |   |
| Total purchase price                                    |   | $ 60,974 |   |   |

 

The estimate of unearned compensation was based on thefair market value of the unvested options as of May 28, 2004. Compensationexpense will be recognized over the remaining vesting period of the options,which ranges from one month to 48 months, as each option grant vests.

29

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**STELLENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data)**

The Company valued the identifiable intangible assetsacquired using an appraisal. Identifiable intangible assets consist of:

| ** **      | ** ** | **Fair Value** | ** ** | **Useful Life** | ** ** | **Annual Amortization** | ** ** |
|-----------------|------------|---------------------|------------|----------------------|------------|------------------------------|------------|
| Core technology |       |                | $          | 3,400                |       |                         |       | 3 years |   |   |   | $ | 1,133 |   |   |
| Customer base   |       |                | 2,700      |                 |       |                         | 10 years   |   |   |   | 270 |   |   |
|            |       |                | $          | 6,100                |       |                         |       |   |   |   |   | $ | 1,403 |   |   |

 

As part of the acquisition of Optika, the Company alsoacquired net deferred tax assets of approximately $13,390. These deferred taxassets relate to net operating loss (NOL) carryforwards and the taxeffects of temporary differences primarily related to deferred revenue,depreciation and amortization and other accrued expenses. The $51,286 allocatedto goodwill is not deductible for tax purposes.

Realization of the NOL carryforwards and the deferredtax temporary differences, which were acquired, are contingent on futuretaxable earnings. The deferred tax assets were reviewed for expectedutilization using a more likely than not approach by assessing the availablepositive and negative evidence surrounding their recoverability.

The Company has recorded a full valuation allowanceagainst the net deferred tax assets, acquired or otherwise, due to theuncertainly of future taxable income, which is necessary to realize thebenefits of the deferred tax assets. NOL carryforwards were approximately$34,803. These NOLs begin to expire in 2010 and are subject to annualutilization limits due to prior ownership changes.

The Company will continue to assess and evaluatestrategies that will enable the deferred tax asset, or portion thereof, to beutilized, and will reduce the valuation allowance appropriately at such timewhen it is determined that the more likely than not criteria is satisfied.Reversal of the valuation allowance will be applied first to reduce to zero anygoodwill related to the acquisition, then to reduce to zero other non-currentintangible assets related to the acquisition, and then to reduce income taxexpense.

Thefollowing unaudited pro forma condensed consolidated results of operations havebeen prepared as if the acquisition of Optika had occurred as of April 1,2003:

| ** **                            | ** ** | **Years Ended  March 31,** | ** ** |
|---------------------------------------|------------|--------------------------------------|------------|
| ** **                            | ** ** | **2004**                             | ** ** | **2005** | ** ** |
| Net revenues                          |       | $                                    | 96,967     |   | $ | 109,361 |   |
| Net loss                              |       | $                                    | (12,240    | ) | $ | (9,404 | ) |
| Net loss per share:              |       |                                 |       |   |   |
| Basic and diluted                     |       | $                                    | (0.47      | ) | $ | (0.35 | ) |
| Weighted average shares  outstanding: |       |                                 |       |   |   |
| Basic and diluted                     |       | 26,151                               |       | 26,882 |   |

 

The unaudited pro forma condensed consolidated resultsof operations are not necessarily indicative of results that would haveoccurred had the acquisition occurred as of April 1, 2003, nor are theynecessarily indicative of the results that may occur in the future.

During fiscal year 2005, the Company acquired certainassets of Stellent Information Systems Company Limited, a Korean entity, for atotal of $205 in cash. $180 was recorded as goodwill and $25 was 

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**STELLENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data)**

allocated to otherintangible assets. Additional pro forma disclosures required under SFAS No. 141,related to this acquisition were not considered material.

Fiscal year 2004 acquisition:

On August 20, 2003,the Company acquired certain assets of Ancept, Inc., a provider ofsoftware for digital asset management, for approximately $2,000 in cash and 100shares of the Company’s stock, which were valued at approximately $800.Approximately $1,914 of the purchase price was allocated to goodwill, $972 wasallocated to capitalized software and $86 was allocated to liabilities assumedin the acquisition. The Company was also required to make contingentconsideration payments based upon certain license revenue sales for two yearsfrom the date of acquisition. Total contingent consideration payments were$140, $367 and $146 for fiscal years 2004, 2005 and 2006, respectively. TheCompany does not anticipate any additional earn out to be paid related to thisacquisition. Additional pro forma disclosures required under SFAS No. 141,related to this acquisition were not considered material.

**3. Related PartyTransactions**

At March 31, 2002, the Company held investmentsin and notes with five non-public start-up technology companies, owningapproximately 3% to 12% of these companies, and in publicly traded technologycompanies listed on NASDAQ, primarily Active IQ, in which the Company owned5.4%, exclusive of warrants. Investments in these companies were made with theintention of giving the Company opportunities to have new technologiesdeveloped or give the Company leverage into certain vertical markets that theCompany may not otherwise be able to obtain on its own. At March 31, 2003,the Company had remaining value in two of these non-public company investmentsand owned approximately 9% to 13% of them. At March 31, 2004, the Company’sinvestments in these two non-public companies were approximately 8% and 11%. Thevalue of these two investments at March 31, 2003 and 2004 wasapproximately $1,136. A permanent decline in value for these two companies ofapproximately $1,136 was recorded in fiscal 2005.

Upon the acquisition of certain assets of Active IQ(see Note 2) in March 2003, the Company recorded an impairment ofapproximately $1,100 million related to the Company’s investment in Active IQ.For substantially all of the year ended March 31, 2003, the Company’sinvestment in Active IQ was less than 5%. In fiscal 2004, the Company sold thisinvestment and recorded a gain of approximately $388.

During the years ended March 31, 2003 and March 31,2004, the Company entered into several sales transactions with companiesaffiliated with members of our Board of Directors. Revenue of approximately$393 and $223 from these sales transactions was recorded during the years endedMarch 31, 2003 and March 31, 2004, respectively. At March 31,2003 and March 31, 2004, we had an account receivable balance of $340 and$54 associated with these transactions, respectively. The terms and conditions,including fees, with respect to the transactions were substantially similar tothose with unaffiliated third parties negotiated at arms length. The members ofour Board of Directors affiliated with these companies had no direct orindirect material interest in the transactions.

In March 2004, theCompany entered into a non-exclusive reseller agreement with Optika, Inc.,a company with which we had announced a definitive merger agreement in January 2004and later acquired in May 2004 (see Note 2). The agreement provided for thesale of Optika products by us. In the year ended March 31, 2004, werecognized approximately $172 of revenue under the agreement.

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**STELLENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data)**

**4. SupplementalBalance Sheet Information**

**Property andEquipment**

Propertyand equipment consists of the following: 

| ** **                          | ** ** | **March 31,** | ** ** |
|-------------------------------------|------------|--------------------|------------|
| ** **                          | ** ** | **2005**           | ** ** | **2006** | ** ** |
| Equipment and  furniture            |       | $                  | 13,323     |   | $ | 15,725 |   |
| Equipment under  capitalized leases |       | 819                |       | 1,962 |   |
| Leasehold  improvements             |       | 1,926              |       | 3,882 |   |
|                                |       | 16,068             |       | 21,569 |   |
| Less accumulated  depreciation      |       | (11,735            | )          | (13,747 | ) |
|                                |       | $                  | 4,333      |   | $ | 7,822 |   |

 

**Accrued Expensesand Other**

Accruedexpenses and other consists of the following: 

| ** **                   | ** ** | **March 31,** | ** ** |
|------------------------------|------------|--------------------|------------|
| ** **                   | ** ** | **2005**           | ** ** | **2006** | ** ** |
| Accrued vacation             |       |               | $          | 1,282 |   |   | $ | 1,770 |   |
| Accrued  restructuring costs |       |               | 1,747      |   |   | 621 |   |
| Other accrued  expenses      |       |               | 4,838      |   |   | 5,051 |   |
|                         |       |               | $          | 7,867 |   |   | $ | 7,442 |   |

 

**5. Shareholders’Equity**

*PreferredStock:*   Stellent’s Certificate of Incorporationprovides for the issuance of up to 10,000 shares of undesignated preferredstock. Undesignated preferred stock may be issued in one or more series, witheach series to have those rights and preferences, including, withoutlimitation, voting rights, dividend rights, conversion rights, redemptionprivileges and liquidation preferences, as shall be determined by unlimiteddiscretion of Stellent’s Board of Directors. At March 31, 2005 and 2006,no preferred stock was issued or outstanding.

*CommonStock:**  *Stellent’sCertificate of Incorporation provides for the issuance of up to 90,000 sharesof common stock with a par value of $0.01. The holders of Stellent common stockare entitled to one vote per share on all matters to be voted upon by itsstockholders. The holders of common stock have no preemptive or conversionrights or other subscription rights. There are no redemption or sinking fundprovisions applicable to the common stock. The determination to pay dividendson common stock will be at the discretion of the Board of Directors and willdepend on the Company’s financial condition, results of operations, cashrequirements, prospects and such other factors as the Board of Directors maydeem relevant.

On March 6, 2006, the Board of Directors declaredthe Company’s initial quarterly cash dividend of $0.03 per share. The dividendwas paid on March 28, 2006 to stockholders of record at the close ofbusiness on March 16, 2006. The total amount of the dividend was $879. On May 9,2006, the Board of Directors 

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**STELLENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data)**

declared a quarterly cash dividend of $0.03 per shareto be paid on June 27, 2006 to stockholders of record on June 15,2006.

*Warrants:*   TheCompany had no stock purchase warrants outstanding as of March 31, 2006.

*StockRepurchase:*   In April 2000, the board ofdirectors authorized the repurchase of up to $10,000 of the Company’s commonstock at a price not exceeding $20 per share. In September 2001, the boardof directors authorized the repurchase of up to $20,000 of the Company’s commonstock at a price not exceeding $15 per share. During fiscal 2003 and 2004, theCompany reacquired 757 and 63 shares of common stock at a cost of $3,465 and $309,respectively, which was equal to the fair value of the shares on the dateacquired.

*ShareholderRights Plan:*   On May 29, 2002, the Board ofDirectors of the Company approved a shareholder rights plan which provides forfair and equal treatment of all shareholders in the event an unsolicitedattempt is made to acquire the Company. Under the plan, the Company declared adividend of one preferred share purchase right for each outstanding share ofcommon stock of the Company, payable to shareholders of record on June 13,2002. Each right entitles the holder to purchase from the Company one-hundredthof a Series A junior participating preferred share of the Company at anexercise price of $75. The rights will separate from the common shares and adistribution for the rights will occur, subject to certain criteria, in theevent an investor group acquires 15% or more of the Company’s common stock. Therights are not exercisable until the distribution date and expire on June 13,2012.

*StockOptions:*   The Company maintains several stockoption plans (the Plan), which provide for the grant of stock options and otherstock based awards. The Plan is administered by the Board of Directors, whichhas the discretion to determine the number and purchase price of shares subjectto stock options (which may be below the fair market value of the common stockon the date thereof), the term of each option, and the terms of exercisability.The options generally vest over periods of one to five years and have a maximumlife of ten years. A maximum of 12,521 shares of common stock were issuable toemployees and directors under the terms of Plan, of which a total of 3,074 wereavailable for future grant as of March 31, 2006.

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**STELLENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data)**

Asummary of the Company’s stock option activity, and related information throughMarch 31, 2006 is as follows:

| ** **                             | ** ** | **Shares** | ** ** | **Weighted-  Average  Exercise Price** | ** ** |
|----------------------------------------|------------|------------|------------|---------------------------------------------|------------|
| Outstanding as of  March 31, 2003 |       | 4,685      |       |                                        | 12.13      |   |   |
| Granted                                |       | 1,838      |       |                                        | 6.47       |   |   |
| Exercised                              |       | (274       | )          |                                        | 4.90       |   |   |
| Forfeited                              |       | (605       | )          |                                        | 17.49      |   |   |
| Outstanding as of  March 31, 2004 |       | 5,644      |       |                                        | 10.06      |   |   |
| Converted Optika options               |       | 1,114      |       |                                        | 6.70       |   |   |
| Granted                                |       | 1,513      |       |                                        | 7.20       |   |   |
| Exercised                              |       | (778       | )          |                                        | 4.67       |   |   |
| Forfeited                              |       | (807       | )          |                                        | 12.56      |   |   |
| Outstanding as of  March 31, 2005 |       | 6,686      |       |                                        | 9.19       |   |   |
| Granted                                |       | 1,322      |       |                                        | 7.84       |   |   |
| Exercised                              |       | (1,547     | )          |                                        | 5.43       |   |   |
| Forfeited                              |       | (688       | )          |                                        | 10.28      |   |   |
| Outstanding as of  March 31, 2006 |       | 5,773      |       |                                        | $          | 9.76 |   |   |
|                                        |            |            |            |                                             |            |  |  |  |

 

Thefollowing table summarizes information about the stock options outstanding atMarch 31, 2006:

| ** **              | ** ** | ** ** | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
|-------------------------|------------|------------|------------|------------------------------|------------|------------------------------|------------|
| ** **              | ** ** | ** ** | ** ** | **Weighted-Average**         | ** ** | ** **                   | ** ** | ** ** | ** ** |
| **Range of**       | ** ** | **Number** | ** ** | **Remaining**                | ** ** | **Weighted-Average**         | ** ** | **Number** | ** ** | **Weighted-Average** | ** ** |
| **Exercise Price** | ** ** | ** ** | ** ** | **Outstanding**              | ** ** | **Contractual Life**    | ** ** | **Exercise Price** | ** ** | **Exercisable** | ** ** | **Exercise Price** | ** ** |
| $1.91 - $5.99           |       |       | 961        |                         |       |                         | 6.9        |   |   |   | $ | 4.51 |   |   |   | 838 |   |   |   | $ | 4.53 |   |   |
| $6.00 - $6.99           |       |       | 1,472      |                         |       |                         | 7.0        |   |   |   | 6.48 |   |   |   | 934 |   |   |   | 6.40 |   |   |
| $7.00 - $7.99           |       |       | 1,556      |                         |       |                         | 8.4        |   |   |   | 7.47 |   |   |   | 590 |   |   |   | 7.51 |   |   |
| $8.00 - $16.99          |       |       | 1,111      |                         |       |                         | 7.3        |   |   |   | 10.65 |   |   |   | 710 |   |   |   | 11.44 |   |   |
| $17.00 - $81.82         |       |       | 673        |                         |       |                         | 4.8        |   |   |   | 28.22 |   |   |   | 673 |   |   |   | 28.22 |   |   |
|                    |       |       | 5,773      |                         |       |                         | 7.1        |   |   |   | $ | 9.76 |   |   |   | 3,745 |   |   |   | $ | 11.04 |   |   |
|                         |            |            |            |                              |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

* *

*Employee Stock PurchasePlan:*   The Company has an employee stock purchaseplan (the Employee Plan), which allows eligible employees to purchase stock ofthe Company at 85% of its fair market value through elected payroll deductionsequal up to 10% of their compensation. During fiscal 2004, 2005 and 2006, 172,156 and 146, respectively, shares of common stock had been purchased under theEmployee Plan. During fiscal 2006, all available shares under the Employee Planwere issued and the Company’s does not currently  intend to authorize any additional shares.

**6. Employee BenefitPlans**

The Company maintainspre-tax salary reduction and profit sharing plans under the provisions of Section 401(k) ofthe Internal Revenue Code. The plans cover substantially all full-timeemployees who have reached the age of 21. Each employee may elect tocontribute to the Plan through payroll deductions 

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**STELLENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data)**

of hisor her salary, subject to certain limitations. Total Company contributions tothe plans for the years ended March 31, 2004, 2005 and 2006 were $405,$551 and $667, respectively.

**7. Basic andDiluted Net Income (Loss) Per Common Share**

Basicnet income (loss) per share is computed using the weighted average numberof shares outstanding of common stock. Diluted net income (loss) per shareis computed using the weighted average number of shares of common stock andcommon equivalent shares outstanding during the period. Common equivalentshares consist of stock options and are excluded from the computation if theireffect is anti-dilutive. Options to purchase 5,868 and 6,686 shares of commonstock were outstanding at March 31, 2004 and 2005, but were excluded fromthe computation of common share equivalents because they were anti-dilutive. The components of net income (loss) per basicand diluted shares are as follows:

| ** **                                     | ** ** | **Years Ended March 31,** | ** ** |
|------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                     | ** ** | **2004**                                 | ** ** | **2005** | ** ** | **2006** | ** ** |
| Net income (loss)  as reported                 |       | $                                        | (10,513    | ) | $ | (5,841 | ) | 6,342 |   |
| Weighted average shares  outstanding:          |       |                                     |       |   |   |   |   |
| Basic                                          |       | 22,028                                   |       | 26,224 |   | 28,266 |   |
| Dilution associated with employee stock option |       | —                                   |       | — |   | 1,349 |   |
| Diluted                                        |       | 22,028                                   |       | 26,224 |   | 29,615 |   |
| Net income (loss) per  share as reported:      |       |                                     |       |   |   |   |   |
| Basic                                          |       | $                                        | (0.48      | ) | $ | (0.22 | ) | $ | 0.22 |   |
| Diluted                                        |       | $                                        | (0.48      | ) | $ | (0.22 | ) | $ | 0.21 |   |

 

**8. Income Taxes**

Theprovision for income taxes consists of the following:

| ** **                           | ** ** | **Years Ended March 31,** | ** ** |
|--------------------------------------|------------|------------------------------------------|------------|
| ** **                           | ** ** | **2004**                                 | ** ** | **2005** | ** ** | **2006** | ** ** |
| Current:                             |       |                                     |       |   |   |   |   |   |   |   |   |
| U.S. and state                       |       |                                     | $          | — |   |   |   | $ | — |   |   | $ | 37 |   |
| Foreign                              |       |                                     | —     |   |   |   | — |   |   | — |   |
| Total current tax expense (benefit)  |       |                                     | —     |   |   |   | — |   |   | 37 |   |
| Deferred:                            |       |                                     |       |   |   |   |   |   |   |   |   |
| U.S. and state                       |       |                                     | $          | — |   |   |   | $ | — |   |   | $ | 136 |   |
| Foreign                              |       |                                     | —     |   |   |   | — |   |   | — |   |
| Total deferred tax expense (benefit) |       |                                     | —     |   |   |   | — |   |   | 136 |   |
| Total income tax expense  (benefit)  |       |                                     | $          | — |   |   |   | $ | — |   |   | $ | 173 |   |

 

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**STELLENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data)**

Deferred tax assets/(liabilities) are comprised of thefollowing:

| ** **                                    | ** ** | **Years Ended March 31,** | ** ** |
|-----------------------------------------------|------------|------------------------------------------|------------|
| ** **                                    | ** ** | **2005**                                 | ** ** | **2006** | ** ** |
| Deferred tax  liabilities:                    |       |                                     |       |   |   |
| Depreciation                                  |       | $                                        | (225       | ) | $ | (469 | ) |
| Other                                         |       | 41                                       |       | 73 |   |
| Deferred tax  assets:                         |       |                                     |       |   |   |
| Deferred revenue                              |       | 871                                      |       | 167 |   |
| Accounts receivable and other reserves        |       | 640                                      |       | 1,098 |   |
| Net operating loss carryforwards              |       | 54,773                                   |       | 58,339 |   |
| Amortization of intangibles                   |       | 8,071                                    |       | 4,771 |   |
| Foreign tax credits                           |       | 309                                      |       | 409 |   |
| Permanent investment write-down               |       | 2,006                                    |       | 1,348 |   |
| Capital loss carryforwards                    |       | —                                   |       | 2,017 |   |
| Research and development credit carryforwards |       | 4,612                                    |       | 5,258 |   |
|                                          |       | 71,098                                   |       | 73,011 |   |
| Valuation  allowance                          |       | (71,098                                  | )          | (73,147 | ) |
| Net deferred tax  asset/(liability)           |       | $                                        | —     |   | $ | (136 | ) |

 

Deferredtax liabilities and deferred tax assets reflect the net tax effects oftemporary differences between the carrying amounts of assets and liabilitiesfor financial reporting purposes and the amounts used for income tax purposes.The Company had net operating loss (NOL) carryforwards of approximately$126,291 in the United States (U.S.) and foreign NOL carryforwards ofapproximately $35,971 at March 31, 2006. The utilization of a portion ofthe Company’s U.S. NOLs and carryforwards is subject to annual limitationsunder Internal Revenue Code Section 382. Subsequent equity changes couldfurther limit the utilization of these NOLs and credit carryforwards. If notused, the NOLs begin to expire in 2010 in the following amounts each year:

| For the year ending March 31, | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------------------------|------------|------------|------------|------------|------------|
| 2007                                                   |       | $          | —     |       |
| 2008                                                   |       | —     |       |
| 2009                                                   |       | —     |       |
| 2010                                                   |       | 740        |       |
| 2011                                                   |       | 88         |       |
| Thereafter                                             |       | 161,434    |       |
|                                                   |       | $          | 162,262    |       |

 

Realizationof the NOL carryforwards and other deferred tax temporary differences iscontingent on future taxable earnings. The deferred tax asset was reviewed forexpected utilization using a “more likely than not” approach by assessing theavailable positive and negative evidence surrounding its recoverability.Accordingly, a full valuation allowance has been recorded against the Company’sdeferred tax asset, as it was determined based upon past losses that it was“more likely than not” that the Company’s deferred tax assets would be realized.In future years, if the deferred tax assets are determined by management to be 

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**STELLENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data)**

more likely than not to be realized, the recognizedtax benefits relating to the reversal of the valuation allowance as of March 31,2006 will be recorded as follows:

| Income tax  benefit from continuing operations |   | $      | 44,150 |   |
|------------------------------------------------|--------|--------|--------|--------|
| Goodwill and intangibles                       |   | 12,272 |   |
| Additional  paid-in capital                    |   | 16,725 |   |
| Total                                          |   | $      | 73,147 |   |

 

The Company will continue to assess and evaluatestrategies that will enable the deferred tax asset, or portion thereof, to beutilized, and will reduce the valuation allowance appropriately at such timewhen it is determined that the “more likely than not” criteria is satisfied.

TheCompany’s effective tax rate varied from the U.S. federal statutory tax rate asfollows:

| ** **                        | ** ** | **Years Ended March 31,** | ** ** |
|-----------------------------------|------------|------------------------------------------|------------|
| ** **                        | ** ** | **2004**                                 | ** ** | **2005** | ** ** | **2006** | ** ** |
| Federal statutory  rate           |       | (34.0                                    | )%         | (34.0 | )% | 34.0 | % |
| Research and  development credits |       | (0.1                                     | )          | 1.9 |   | (4.4 | ) |
| State taxes                       |       | (0.3                                     | )          | 0.4 |   | — |   |
| Permanent  Differences            |       | (1.8                                     | )          | 4.0 |   | 1.0 |   |
| Change in  valuation allowance    |       | 37.6                                     |       | 27.8 |   | (28.6 | ) |
| Other                             |       | (1.4                                     | )          | (0.1 | ) | 0.7 |   |
| Effective tax  rate               |       | —                                   | %          | — | % | 2.7 | % |

 

**9. Commitments andContingencies**

*Operating and CapitalLeases:*   The Company has entered into certainnon-cancelable operating and capital lease agreements related to office and warehousespace, equipment and vehicles. Total rent expense under operating leases net ofsublease income, was $5,265, $4,548 and $3,718 for the years ended March 31,2004, 2005 and 2006, respectively. Total payments including interest made undercapital leases for fiscal years 2006 and 2005 was $589 and $673, respectively. TheCompany did not have any capital leases for the year ended March 31, 2004.At March 31, 2005 and 2006, leased capital assets included in equipmentand furniture were as follows:

| ** **                            | ** ** | **March 31,** | ** ** |
|---------------------------------------|------------|--------------------|------------|
| **Property and equipment:** | ** ** | ** **         | ** ** | **2005** | ** ** | **2006** | ** ** |
| Equipment and  furniture              |       |               | $          | 819 |   |   | $ | 1,962 |   |
| Less accumulated  depreciation        |       |               | (653       | ) |   | (1,216 | ) |
|                                  |       |               | $          | 166 |   |   | $ | 746 |   |
|                                       |            |                    |            |  |  |  |  |  |  |  |  |

 

37

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**STELLENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data)**

Minimumremaining rental commitments under operating leases net of sublease and capitalleases arrangements are as follows as of March 31, 2006:

| ** **                                                 | ** ** | **Operating** | ** ** | **Capital** | ** ** |
|------------------------------------------------------------|------------|---------------|------------|-------------|------------|
| For the year ending  March 31,                        |       |          |       |        |       |   |   |   |   |
| 2007                                                       |       |          | $          | 3,017       |       |   |   | $ | 505 |   |   |
| 2008                                                       |       |          | 1,292      |        |       |   | 208 |   |   |
| 2009                                                       |       |          | 1,156      |        |       |   | 87 |   |   |
| 2010                                                       |       |          | 1,113      |        |       |   | — |   |   |
| 2011                                                       |       |          | 1,038      |        |       |   | — |   |   |
| Thereafter                                                 |       |          | 2,518      |        |       |   | — |   |   |
| Total                                                      |       |          | $          | 10,134      |       |   |   | $ | 800 |   |   |
| Less: Amounts  representing interest                       |       |          |       |        |       |   | (46 | ) |   |
| Present value of future  minimum lease payments            |       |          |       |        |       |   | $ | 754 |   |   |
| Less: Current portions  of obligations under capital lease |       |          |       |        |       |   | (473 | ) |   |
| Obligations under capital leases, net of current  portions |       |          |       |        |       |   | $ | 281 |   |   |

 

*Software Royalties:*   TheCompany has entered into several software royalty agreements whereby it isrequired to pay a royalty amount based upon predetermined payment schedules. AtMarch 31, 2005 and 2006, the Company recorded advanced royalties asprepaid expense of $2,009 and $1,864, respectively. Royalties are recognized asexpense based on sales. During the years ended March 31, 2004, 2005 and2006 royalty expense totaled $3,103, $3,042 and $2,114, respectively.

*Legal Proceedings:*   TheCompany was a defendant, along with certain current and former officers anddirectors of the Company, in a putative class action lawsuit entitled *In re Stellent Securities Litigation.*Thelawsuit was a consolidation of several related lawsuits (the first of which wascommenced on July 31, 2003). The plaintiff alleged that the defendantsmade false and misleading statements relating to the Company and its futurefinancial prospects in violation of Sections 10(b) and 20(a) of theSecurities Exchange Act of 1934. In fiscal year 2005 a settlement was reached,subject to final documentation and preliminary and final court approval. TheCompany received the final court approval in the third quarter of fiscal year2006. No further expenses are anticipated with this lawsuit.

Certaincurrent and former officers and directors were also named in a derivativelawsuit that followed the completion of a special litigation committee processin which the plaintiff, on behalf of the Corporation, alleged that the boardbreached its fiduciary duties by allowing certain circumstances to exist thatgave rise to the Federal case described above. A special litigation committeehas recommended that the Company not pursue an action against the Board and/orthe Company’s officers. The Company moved to dismiss the action. While themotion to dismiss was pending the Company's insurance carriers, because of theongoing expense of litigation and the role the plaintiff's counsel played inthe special litigation committee process, agreed to settle the pendingderivative lawsuit for a payment of $250,000. The settlement is subject topreliminary and final court approval. The settlement will be paid entirely fromproceeds of an insurance policy.

Additionally, the Company is subject to various claimsand litigation in the ordinary course of its business, including employmentmatters, and intellectual property claims. Management does not believe theoutcome of any current legal matters will have a material adverse effect on itsconsolidated financial position, results of operations or cash flows.

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**STELLENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data)**

**10. RestructuringCharges**

The Company initiated four restructuring plans duringfiscal year 2003 in an effort to better align its expenses and revenues inlight of the continued economic slowdown. The Company adopted SFAS No. 146,*Accounting for Costs Associated with Exit orDisposal Activities*, effective January 1, 2003 and hasaccounted for restructuring charges initiated after December 31, 2002under its provisions.

As part of the Company’s fourth restructuring plan,which occurred during March 2003, the Company recorded approximately $452during the first quarter of fiscal 2004, of which $396 related to employeetermination costs for five employees who were identified to be terminated aspart of the plan, but had not been communicated their termination until after March 31,2003. This plan also included the closing of an office facility as part of itsacquisition of Active IQ (see Note 2). The Company closed the facility duringthe first quarter of fiscal 2004 and approximately $56 was recorded forfacility closing costs and future lease payments. During the first quarter offiscal 2004, the Company recorded an additional $360 of facility closing costsrelated to a change in the estimated costs of closing a research anddevelopment facility in Massachusetts, related to the restructuring planinitiated during the second quarter of fiscal 2003, which was closed in thequarter ended September 30, 2002. During the first quarter of fiscal 2006a benefit of $57 was record as a change in the estimated costs related to theMassachusetts research and development facility closed in the quarter ended September 30,2002. A total of $16 remained to be paid in connection with these charges at March 31,2006.

In connection with the integration of Optika and in connectionwith our plans to continue to reduce costs and improve operating efficiencies,the Company adopted two restructuring plans during fiscal 2005. The initialrestructuring took place during the first quarter which included thetermination of 30 employees and the closure of the Company’s New York facility.Restructuring charges  included in theCompany’s net loss during the first quarter of fiscal year 2005 related to thisplan were approximately $2,461, which included $1,866 for employee terminatedbenefits and $595 for excess facilities. A change of estimate related to thisrestructuring plan resulted in $32 additional expense being recognized in thefourth quarter of fiscal year 2005. At March 31, 2006, approximately $247remained to be paid in connection with these charges. The final fiscal year2005 restructuring plan was completed during our fourth quarter, which includedthe termination of 25 employees and the closure of the Company’s Mexicanfacility. The expense recognized and included in the Company’s net loss duringthe fourth quarter of fiscal year 2005 related to these restructuring planstotaled $1,104, with approximately $990 related to employee terminated benefitsand approximately $114 related to excess facilities. A change of estimate relatedto this restructuring plan resulted in $74 additional expense being recognizedin the first quarter of fiscal year 2006. At March 31, 2006 approximately$56 employee termination benefits remained to be paid in connection with thischarge.

During the second quarter of fiscal year 2006, theCompany adopted a restructuring plan to reorganize its international salesoperations and consolidate certain general and administrative activities. Theinitial charge of $508 was recognized during the second quarter of fiscal year2006, which included the costs for pay and benefits related to the involuntarytermination of 8 employees of approximately $321 with the remaining $187related to the closure of the Company’s Brazilian facility. In the thirdquarter and fourth quarter of fiscal year 2006 a change of estimate wasrecorded which resulted in $67 and $28, respectively, of additional expenserelated to this restructuring plan. The second restructuring plan resulted in acharge of $513 which was recorded during the fourth quarter of fiscal year 2006.The expense recognized included costs for pay and benefits related to theinvoluntary termination of 20 employees of 

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**STELLENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands, except per share data)**

approximately $470 and theremaining $43 related to other exit costs necessary to the eliminate ourdigital asset management group as the technology has been fully integrated intoour other software products. At March 31, 2006 approximately $245 remainedto be paid in connection with this charge.

As of March 31, 2006 the total $621 was includedin “accrued expenses and other” balance within the Company’s ConsolidatedBalance Sheets, of which employee termination benefit costs of $418 and otherexit costs totaling $203 will be paid out through  September 2006.

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**STELLENT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**(In thousands, except pershare data)**

Selectedinformation regarding the restructuring charges and related accrued liabilitiesby restructuring plan is as follows:

| ** ** | ** ** | **Restructuring Charges**    | ** ** |
|------------|------------|-----------------------------------|------------|
| ** ** | ** ** | **Second  Quarter ‘03** | ** ** | **First Quarter ‘04** | ** ** | **First Quarter ‘05** | ** ** | **Fourth Quarter ‘05** | ** ** | **Second Quarter ‘06** | ** ** | **Fourth Quarter ‘06** | ** ** | ** ** | ** ** |
| ** ** | ** ** | **Other  Exit  Costs**            | ** ** | **Employee  Termination  Benefits** | ** ** | **Other  Exit  Costs** | ** ** | **Employee  Termination  Benefits** | ** ** | **Other  Exit  Costs** | ** ** | **Employee  Termination  Benefits** | ** ** | **Other  Exit  Costs** | ** ** | **Employee  Termination  Benefits** | ** ** | **Other  Exit  Costs** | ** ** | **Employee  Termination  Benefits** | ** ** | **Other  Exit  Costs** | ** ** | **Total** | ** ** |
|            |            |                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

| Balance at  April 1, 2003      |   |   | $ 304 |   |   |   | $  — |   |   |   | $ — |   |   |   | $   — |   |   |   | $ — |   |   |   | $  — |   |   | $  — |   |   | $  — |   |   | $  — |   |   | $ — |   |   | $  — |   | $ 304 |   |
|-------------------------------------|--------|--------|------------|--------|--------|--------|---------------------|--------|--------|--------|---------------|--------|--------|--------|---------------------------|--------|--------|--------|---------------|--------|--------|--------|---------------------|--------|--------|---------------------|--------|--------|---------------------|--------|--------|---------------------|--------|--------|---------------|--------|--------|---------------------|--------|------------|--------|
| Expense                             |   |   | —     |   |   |   | 396                 |   |   |   | 56            |   |   |   | —                    |   |   |   | —        |   |   |   | —              |   |   | —              |   |   | —              |   |   | —              |   |   |          |   |   | —              |   | 452        |   |
| Payments                            |   |   | (65        | )      |   |   | (245                | )      |   |   | —        |   |   |   | —                    |   |   |   | —        |   |   |   | —              |   |   | —              |   |   | —              |   |   | —              |   |   | —        |   |   | —              |   | (310       | )      |
| Change in estimate                  |   |   | 360        |   |   |   | —              |   |   |   | —        |   |   |   | —                    |   |   |   | —        |   |   |   | —              |   |   | —              |   |   | —              |   |   | —              |   |   | —        |   |   | —              |   | 360        |   |
| Balance at  June 30, 2003      |   |   | 599        |   |   |   | 151                 |   |   |   | 56            |   |   |   | —                    |   |   |   | —        |   |   |   | —              |   |   | —              |   |   | —              |   |   | —              |   |   |          |   |   | —              |   | 806        |   |
| Payments                            |   |   | (43        | )      |   |   | (38                 | )      |   |   | (56           | )      |   |   | —                    |   |   |   | —        |   |   |   | —              |   |   | —              |   |   | —              |   |   | —              |   |   | —        |   |   | —              |   | (137       | )      |
| Balance at  September 30, 2003 |   |   | 556        |   |   |   | 113                 |   |   |   | —        |   |   |   | —                    |   |   |   | —        |   |   |   | —              |   |   | —              |   |   | —              |   |   | —              |   |   | —        |   |   | —              |   | 669        |   |
| Payments                            |   |   | (43        | )      |   |   | (38                 | )      |   |   | —        |   |   |   | —                    |   |   |   | —        |   |   |   | —              |   |   | —              |   |   | —              |   |   | —              |   |   | —        |   |   | —              |   | (81        | )      |
| Balance at  December 31, 2003  |   |   | 513        |   |   |   | 75                  |   |   |   | —        |   |   |   | —                    |   |   |   | —        |   |   |   | —              |   |   | —              |   |   | —              |   |   | —              |   |   | —        |   |   | —              |   | 588        |   |
| Payments                            |   |   | (49        | )      |   |   | —              |   |   |   | —        |   |   |   | —                    |   |   |   | —        |   |   |   | —              |   |   | —              |   |   | —              |   |   | —              |   |   | —        |   |   | —              |   | (49        | )      |
| Change in estimate                  |   |   | —     |   |   |   | (69                 | )      |   |   | —        |   |   |   | —                    |   |   |   | —        |   |   |   | —              |   |   | —              |   |   | —              |   |   | —              |   |   | —        |   |   | —              |   | (69        | )      |
| Balance at  March 31, 2004     |   |   | 464        |   |   |   | 6                   |   |   |   | —        |   |   |   | —                    |   |   |   | —        |   |   |   | —              |   |   | —              |   |   |                |   |   | —              |   |   | —        |   |   | —              |   | 470        |   |
| Expense                             |   |   | —     |   |   |   | —              |   |   |   | —        |   |   |   | 1,866                     |   |   |   | 595           |   |   |   | —              |   |   | —              |   |   | —              |   |   | —              |   |   | —        |   |   | —              |   | 2,461      |   |
| Payments                            |   |   | (48        | )      |   |   | —              |   |   |   | —        |   |   |   | (306                      | )      |   |   | —        |   |   |   | —              |   |   | —              |   |   | —              |   |   | —              |   |   | —        |   |   | —              |   | (354       | )      |
| Balance at  June 30, 2004      |   |   | 416        |   |   |   | 6                   |   |   |   | —        |   |   |   | 1,560                     |   |   |   | 595           |   |   |   | —              |   |   | —              |   |   | —              |   |   | —              |   |   | —        |   |   | —              |   | 2,577      |   |
| Payments                            |   |   | (33        | )      |   |   | —              |   |   |   | —        |   |   |   | (794                      | )      |   |   | (81           | )      |   |   | —              |   |   | —              |   |   | —              |   |   | —              |   |   | —        |   |   | —              |   | (908       | )      |
| Balance at  September 30, 2004 |   |   | 383        |   |   |   | 6                   |   |   |   | —        |   |   |   | 766                       |   |   |   | 514           |   |   |   | —              |   |   | —              |   |   | —              |   |   | —              |   |   | —        |   |   | —              |   | 1,669      |   |
| Payments                            |   |   | (51        | )      |   |   | —              |   |   |   | —        |   |   |   | (391                      | )      |   |   | (81           | )      |   |   | —              |   |   | —              |   |   | —              |   |   | —              |   |   | —        |   |   | —              |   | (523       | )      |
| Balance at  December 31, 2004  |   |   | 332        |   |   |   | 6                   |   |   |   | —        |   |   |   | 375                       |   |   |   | 433           |   |   |   | —              |   |   | —              |   |   | —              |   |   | —              |   |   | —        |   |   | —              |   | 1,146      |   |
| Expense                             |   |   | —     |   |   |   | —              |   |   |   | —        |   |   |   | —                    |   |   |   | —        |   |   |   | 990                 |   |   | 114                 |   |   | —              |   |   | —              |   |   | —        |   |   | —              |   | 1,104      |   |
| Payments                            |   |   | (51        | )      |   |   | (6                  | )      |   |   | —        |   |   |   | (36                       | )      |   |   | (87           | )      |   |   | (348                | )      |   | (7                  | )      |   | —              |   |   | —              |   |   | —        |   |   | —              |   | (535       | )      |
| Change in estimate                  |   |   | —     |   |   |   | —              |   |   |   | —        |   |   |   | 32                        |   |   |   | —        |   |   |   | —              |   |   | —              |   |   | —              |   |   | —              |   |   | —        |   |   | —              |   | 32         |   |
| Balance at  March 31, 2005     |   |   | 281        |   |   |   | —              |   |   |   | —        |   |   |   | 371                       |   |   |   | 346           |   |   |   | 642                 |   |   | 107                 |   |   | —              |   |   | —              |   |   | —        |   |   | —              |   | 1,747      |   |
| Payments                            |   |   | (87        | )      |   |   | —              |   |   |   | —        |   |   |   | (91                       | )      |   |   | (87           | )      |   |   | (265                | )      |   | (142                | )      |   | —              |   |   | —              |   |   | —        |   |   | —              |   | (672       | )      |
| Change in estimate                  |   |   | (57        | )      |   |   | —              |   |   |   | —        |   |   |   | —                    |   |   |   | —        |   |   |   | 27                  |   |   | 47                  |   |   | —              |   |   | —              |   |   | —        |   |   | —              |   | 17         |   |
| Balance at  June 30, 2005      |   |   | 137        |   |   |   | —              |   |   |   | —        |   |   |   | 280                       |   |   |   | 259           |   |   |   | 404                 |   |   | 12                  |   |   | —              |   |   | —              |   |   | —        |   |   | —              |   | 1,092      |   |
| Expense                             |   |   | —     |   |   |   | —              |   |   |   | —        |   |   |   | —                    |   |   |   | —        |   |   |   | —              |   |   | —              |   |   | 321                 |   |   | 187                 |   |   | —        |   |   | —              |   | 508        |   |
| Payments                            |   |   | (79        | )      |   |   | —              |   |   |   | —        |   |   |   | —                    |   |   |   | (91           | )      |   |   | (216                | )      |   | (12                 | )      |   | (160                | )      |   | (43                 | )      |   | —        |   |   | —              |   | (601       | )      |
| Change in estimate                  |   |   | —     |   |   |   | —              |   |   |   | —        |   |   |   | —                    |   |   |   | 140           |   |   |   | —              |   |   | —              |   |   | —              |   |   | —              |   |   | —        |   |   | —              |   | 140        |   |
| Balance at  September 30, 2005 |   |   | 58         |   |   |   | —              |   |   |   | —        |   |   |   | 280                       |   |   |   | 308           |   |   |   | 188                 |   |   | —              |   |   | 161                 |   |   | 144                 |   |   | —        |   |   | —              |   | 1,139      |   |
| Payments                            |   |   | (42        | )      |   |   | —              |   |   |   | —        |   |   |   | (9                        | )      |   |   | (91           | )      |   |   | (63                 | )      |   | —              |   |   | (113                | )      |   | (81                 | )      |   | —        |   |   | —              |   | (399       | )      |
| Change in estimate                  |   |   | —     |   |   |   | —              |   |   |   | —        |   |   |   | —                    |   |   |   | —        |   |   |   | —              |   |   | —              |   |   | 67                  |   |   | —              |   |   | —        |   |   | —              |   | 67         |   |
| Balance at  December 31, 2005  |   |   | 16         |   |   |   | —              |   |   |   | —        |   |   |   | 271                       |   |   |   | 217           |   |   |   | 125                 |   |   | —              |   |   | 115                 |   |   | 63                  |   |   | —        |   |   | —              |   | 807        |   |
| Expense                             |   |   | —     |   |   |   | —              |   |   |   | —        |   |   |   |                      |   |   |   | —        |   |   |   |                |   |   | —              |   |   |                |   |   |                |   |   | 470           |   |   | 43                  |   | 513        |   |
| Payments                            |   |   | —     |   |   |   | —              |   |   |   | —        |   |   |   |                      |   |   |   | (91           | )      |   |   | (69                 | )      |   | —              |   |   | (115                | )      |   | (34                 | )      |   | (257          | )      |   | (11                 | )      | (577       | )      |
| Change in estimate                  |   |   | —     |   |   |   | —              |   |   |   | —        |   |   |   | (150                      | )      |   |   | —        |   |   |   | —              |   |   | —              |   |   | 28                  |   |   | —              |   |   | —        |   |   | —              |   | (122       | )      |
| Balance at  March 31, 2006     |   |   | $ 16  |   |   |   | $  — |   |   |   | $ — |   |   |   | $ 121                |   |   |   | $ 126    |   |   |   | $  56     |   |   | $  — |   |   | $  28     |   |   | $  29     |   |   | $ 213    |   |   | $  32     |   | $ 621 |   |

 

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**STELLENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (In thousands,**except**per share data)**

**11. Segments ofBusiness and Geographic Area Information**

TheCompany operates in two operating segments which meet the aggregation criteriafor a single reporting segment. A summary of the Company’s operations bygeographic area follows:

| ** **           | ** ** | **Year Ended March 31,** | ** ** |
|----------------------|------------|-----------------------------------------|------------|
| ** **           | ** ** | **2004**                                | ** ** | **%** | ** ** | **2005** | ** ** | **%** | ** ** | **2006** | ** ** | **%** | ** ** |
| Revenues:            |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| United States        |       | $                                       | 54,538     |   | 72.0 |   | $ | 77,874 |   | 72.9 |   | $ | 90,835 |   | 73.6 |   |
| Europe               |       | 14,649                                  |       | 19.3 |   | 16,261 |   | 15.2 |   | 20,609 |   | 16.7 |   |
| Asia Pacific         |       | 489                                     |       | 0.7 |   | 6,157 |   | 5.8 |   | 6,313 |   | 5.2 |   |
| Canada               |       | 4,329                                   |       | 5.7 |   | 3,702 |   | 3.5 |   | 4,340 |   | 3.5 |   |
| Other                |       | 1,769                                   |       | 2.3 |   | 2,817 |   | 2.6 |   | 1,288 |   | 1.0 |   |
| Total revenues       |       | $                                       | 75,774     |   | 100.0 |   | $ | 106,811 |   | 100.0 |   | $ | 123,385 |   | 100.0 |   |
| Identifiable assets: |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| United States        |       | $                                       | 3,541      |   |   |   | $ | 3,313 |   |   |   | $ | 7,027 |   |   |   |
| Europe               |       | 894                                     |       |   |   | 696 |   |   |   | 519 |   |   |   |
| Asia Pacific         |       | 36                                      |       |   |   | 318 |   |   |   | 276 |   |   |   |
| Other                |       | —                                  |       |   |   | 6 |   |   |   | — |   |   |   |
| Total                |       | $                                       | 4,471      |   |   |   | $ | 4,333 |   |   |   | $ | 7,822 |   |   |   |

 

Sales are attributed tocountries or region based on the location of the customer.

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