Accounting Policies | 12 Months Ended |
Dec. 31, 2013 |
Accounting Policies [Abstract] | ' |
Accounting Policies | ' |
Accounting Policies |
Accounting Principles |
The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States. |
Principles of Consolidation |
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated. |
Use of Estimates |
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the amounts of revenue and expenses during the reported periods. Significant estimates included in these consolidated financial statements include: |
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• | Allowances for doubtful accounts receivable | | | | | | | | | | | |
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• | Income tax accruals | | | | | | | | | | | |
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• | Uncertain tax positions | | | | | | | | | | | |
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• | Tax valuation reserves | | | | | | | | | | | |
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• | Fair value of stock-based compensation | | | | | | | | | | | |
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• | Contract revenue | | | | | | | | | | | |
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• | Useful lives for depreciation and amortization | | | | | | | | | | | |
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• | Valuations of goodwill and other intangible assets | | | | | | | | | | | |
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• | Contingent consideration | | | | | | | | | | | |
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• | Deferred compensation | | | | | | | | | | | |
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• | Loss contingencies | | | | | | | | | | | |
Actual results could differ from these estimates. Changes in estimates are recorded in the results of operations in the period that the changes occur. |
Revenue Recognition |
Revenue is derived principally from the licensing of computer software products and from related maintenance contracts. Revenue from perpetual licenses is classified as license revenue and is recognized upon delivery of the licensed product and the utility that enables the customer to access authorization keys, provided that acceptance has occurred and a signed contractual obligation has been received, the price is fixed and determinable, and collectibility of the receivable is probable. The Company determines the fair value of PCS sold together with perpetual licenses based on the rate charged for PCS when sold separately. Revenue from PCS contracts is classified as maintenance and service revenue and is recognized ratably over the term of the contract. |
Revenue for software lease licenses is classified as license revenue and is recognized over the period of the lease contract. Typically, the Company’s software leases include PCS which, due to the short term (principally one year or less) of the Company’s software lease licenses, cannot be separated from lease revenue for accounting purposes. As a result, both the lease license and PCS are recognized ratably over the lease period. Due to the short-term nature of the software lease licenses and the frequency with which the Company provides major product upgrades (typically every 12–18 months), the Company does not believe that a significant portion of the fee paid under the arrangement is attributable to the PCS component of the arrangement and, as a result, includes the revenue for the entire arrangement within software license revenue in the consolidated statements of income. |
The Company's Apache products are typically licensed via longer term leases of 24–36 months. The Company recognizes revenue for these licenses over the term of the lease contract. Because the Company does not have vendor-specific objective evidence of the fair value of these leases, the Company also recognizes revenue from perpetual licenses over the term of the lease contract during the infrequent occurrence of these licenses being sold with Apache leases in multiple-element arrangements. |
Revenue from training, support and other services is recognized as the services are performed. The Company applies the specific performance method to contracts in which the service consists of a single act, such as providing a training class to a customer, and the proportional performance method to other service contracts that are longer in duration and often include multiple acts (for example, both training and consulting). In applying the proportional performance method, the Company typically utilizes output-based estimates for services with contractual billing arrangements that are not based on time and materials, and estimates output based on the total tasks completed as compared to the total tasks required for each work contract. Input-based estimates are utilized for services that involve general consultations with contractual billing arrangements based on time and materials, utilizing direct labor as the input measure. |
The Company also executes arrangements through independent channel partners in which the channel partners are authorized to market and distribute the Company’s software products to end-users of the Company’s products and services in specified territories. In sales facilitated by channel partners, the channel partner bears the risk of collection from the end-user customer. The Company recognizes revenue from transactions with channel partners when the channel partner submits a written purchase commitment, collectibility from the channel partner is probable, a signed license agreement is received from the end-user customer and delivery has occurred, provided that all other revenue recognition criteria are satisfied. Revenue from channel partner transactions is the amount remitted to the Company by the channel partners. This amount includes a fee for PCS that is compensation for providing technical enhancements and the second level of technical support to the end-user, which is based on the rate charged for PCS when sold separately, and is recognized over the period that PCS is to be provided. The Company does not offer right of return, product rotation or price protection to any of its channel partners. |
Non-income related taxes collected from customers and remitted to governmental authorities are recorded on the consolidated balance sheet as accounts receivable and accrued expenses. The collection and payment of these amounts are reported on a net basis in the consolidated statements of income and do not impact reported revenues or expenses. |
The Company warrants to its customers that its software will substantially perform as specified in the Company’s most current user manuals. The Company has not experienced significant claims related to software warranties beyond the scope of maintenance support, which the Company is already obligated to provide, and consequently the Company has not established reserves for warranty obligations. |
Cash and Cash Equivalents |
Cash and cash equivalents consist primarily of highly liquid investments such as deposits held at major banks and money market mutual funds with original maturities of three months or less. Cash equivalents are carried at cost, which approximates fair value. The Company’s cash and cash equivalents balances comprise the following: |
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| 31-Dec-13 | | 31-Dec-12 | |
(in thousands, except percentages) | Amount | | % of Total | | Amount | | % of Total | |
Cash accounts | $ | 439,348 | | | 59.2 | | $ | 369,724 | | | 64.1 | |
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Money market mutual funds | 303,138 | | | 40.8 | | 206,979 | | | 35.9 | |
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Total | $ | 742,486 | | | | | $ | 576,703 | | | | |
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The Company held 99% and 98% of its money market mutual fund balances in various funds of a single issuer as of December 31, 2013 and December 31, 2012, respectively. |
Short-term Investments |
Short-term investments consist primarily of deposits held by certain foreign subsidiaries of the Company with original maturities of three months to one year. The Company considers investments backed by government agencies or financial institutions with maturities of less than one year to be highly liquid and classifies such investments as short-term investments. Short-term investments are recorded at fair value. The Company uses the specific identification method to determine the realized gain or loss upon the sale of such securities. |
The Company is averse to principal loss and seeks to preserve invested funds by limiting default risk, market risk and reinvestment risk by placing its investments with high-quality credit issuers. |
Property and Equipment |
Property and equipment is stated at cost. Depreciation is computed on the straight-line method over the estimated useful lives of the various classes of assets, which range from one to 40 years. Repairs and maintenance are charged to expense as incurred. Gains or losses from the sale or retirement of property and equipment are included in operating income. |
Research and Development |
Research and development costs, other than certain capitalized software development costs, are expensed as incurred. |
Software Development Costs |
Internally developed software costs required to be capitalized as defined by the accounting guidance were not material to the Company's consolidated financial statements in 2013, 2012 and 2011. |
Business Combinations |
When the Company consummates an acquisition, the assets acquired and the liabilities assumed are recognized separately from goodwill, at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of the fair value of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While best estimates and assumptions are used to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, the Company's estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill based on refinements to information regarding what was known and knowable as of the acquisition date. Upon the earlier of the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, any subsequent adjustments are recorded in the consolidated statements of income. |
Goodwill and Other Intangible Assets |
Goodwill represents the excess of the consideration transferred over the fair value of net identifiable assets acquired. Other intangible assets consist of trademarks, customer lists, contract backlog, and acquired software and technology. Intangible assets that are not considered to have an indefinite useful life are amortized over their useful lives, which are generally three to 15 years. Amortization expense for intangible assets was $60.7 million, $67.3 million and $51.7 million for the years ended December 31, 2013, 2012 and 2011, respectively. |
The Company tests goodwill and indefinite-lived intangible assets for impairment at least annually by performing a qualitative assessment of whether there is sufficient evidence that it is more likely than not that the fair value of each reporting unit or asset exceeds its carrying amount. Goodwill is tested at the reporting unit level and indefinite-lived intangible assets are tested at the individual asset level. The application of a qualitative assessment requires the Company to assess and make judgments regarding a variety of factors which potentially impact the fair value of the reporting unit or asset being tested, including general economic conditions, industry and market-specific conditions, customer behavior, cost factors, the Company's financial performance and trends, the Company's strategies and business plans, capital requirements, management and personnel issues, and the Company's stock price, among others. The Company then considers the totality of these and other factors, placing more weight on the events and circumstances that are judged to most affect the reporting unit's or asset's fair value and carrying amount, to reach a qualitative conclusion regarding whether it is more likely than not that the fair value of a reporting unit or asset is less than its carrying amount. |
If it is determined that it is more likely than not that the fair value of a reporting unit or asset exceeds its carrying value, no further analysis is necessary. If it is determined that it is more likely than not the reporting unit's or asset's carrying value exceeds its fair value, a quantitative two-step analysis is performed where the fair value of the reporting unit or asset is estimated and the impairment loss, if any, is recorded. |
The Company performs its annual impairment tests for goodwill and indefinite-lived intangible assets on January 1 of each year unless there is an indicator that would require a test during the year. The Company periodically reviews the carrying value of other intangible assets and will recognize impairments when events or circumstances indicate that such assets may be impaired. |
Concentrations of Credit Risk |
The Company has a concentration of credit risk with respect to revenue and trade receivables due to the use of certain significant channel partners to market and sell the Company’s products. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. The following table outlines concentrations of risk with respect to the Company’s revenue: |
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| | Year Ended December 31, | | | |
(as a % of revenue, except customer data) | | 2013 | | 2012 | | 2011 | | | |
Revenue from channel partners | | 25 | % | | 26 | % | | 26 | % | | | |
Largest channel partner | | 6 | % | | 6 | % | | 4 | % | | | |
2nd largest channel partner | | 2 | % | | 3 | % | | 3 | % | | | |
No single direct sale customer accounted for more than 5% of the Company's revenue in 2013, 2012 or 2011. |
In addition to the concentration of credit risk with respect to trade receivables, the Company’s cash and cash equivalents are also exposed to concentration of credit risk. The Company's cash and cash equivalent accounts are insured through various public and private bank deposit insurance programs, foreign and domestic; however, a significant portion of the Company's funds are not insured. The following table outlines concentrations of risk with respect to the Company's cash and cash equivalents: |
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| As of December 31, | | | | | |
(in thousands) | 2013 | | 2012 | | | | | |
Cash and cash equivalents held domestically | $ | 530,680 | | | $ | 399,295 | | | | | | |
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Cash and cash equivalents held by foreign subsidiaries | 211,806 | | | 177,408 | | | | | | |
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Cash and cash equivalents held in excess of deposit insurance, foreign and domestic | 717,589 | | | 559,023 | | | | | | |
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Cash and cash equivalents held with one U.S. financial institution, foreign and domestic | 378,562 | | | 296,270 | | | | | | |
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Allowance for Doubtful Accounts |
The Company makes judgments as to its ability to collect outstanding receivables and provides allowances for a portion of receivables when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices from both value and delinquency perspectives. For those invoices not specifically reviewed, provisions are provided at differing rates based upon the age of the receivable and the geographic area of origin. In determining these percentages, the Company considers its historical collection experience and current economic trends in the customer’s industry and geographic region. The Company recorded provisions for doubtful accounts of $1.5 million, $0.9 million and $0.4 million for the years ended December 31, 2013, 2012 and 2011, respectively. |
Income Taxes |
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period of the enactment date. |
The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In the event the Company determines that it will be able to realize deferred income tax assets in the future in excess of their net recorded amount, an adjustment to the valuation allowance would be recorded that would reduce the provision for income taxes. |
Tax benefits related to uncertain tax positions taken or expected to be taken on a tax return are recorded when such benefits meet a more likely than not threshold. Otherwise, these tax benefits are recorded when a tax position has been effectively settled, which means that the statute of limitations has expired or the appropriate taxing authority has completed their examination even though the statute of limitations remains open. The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statements of income. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheets. |
Foreign Currencies |
Certain of the Company’s sales and intercompany transactions are denominated in foreign currencies. These transactions are translated to the functional currency at the exchange rate on the transaction date. Assets and liabilities denominated in a currency other than the Company's or subsidiary's functional currency are translated at the effective exchange rate on the balance sheet date. Gains and losses resulting from foreign exchange transactions are included in other expense. The Company recorded net foreign exchange losses of $1.1 million, $1.4 million and $0.4 million for the years ended December 31, 2013, 2012 and 2011, respectively. |
The financial statements of the Company’s foreign subsidiaries are translated from the functional (local) currency to U.S. Dollars. Assets and liabilities are translated at the exchange rates on the balance sheet date. Results of operations are translated at average exchange rates, which approximate rates in effect when the underlying transactions occur. |
Accumulated Other Comprehensive Income |
Accumulated other comprehensive income is composed entirely of foreign currency translation adjustments. |
Earnings Per Share |
Basic earnings per share ("EPS") amounts are computed by dividing earnings by the weighted average number of common shares outstanding during the period. Diluted EPS amounts assume the issuance of common stock for all potentially dilutive equivalents outstanding. To the extent stock options are anti-dilutive, they are excluded from the calculation of diluted EPS. The details of basic and diluted EPS are as follows: |
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(in thousands, except per share data) | | 2013 | | 2012 | | 2011 |
Net income | | $ | 245,327 | | | $ | 203,483 | | | $ | 180,675 | |
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Weighted average shares outstanding – basic | | 92,691 | | | 92,622 | | | 92,120 | |
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Dilutive effect of stock plans | | 2,448 | | | 2,332 | | | 2,261 | |
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Weighted average shares outstanding – diluted | | 95,139 | | | 94,954 | | | 94,381 | |
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Basic earnings per share | | $ | 2.65 | | | $ | 2.2 | | | $ | 1.96 | |
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Diluted earnings per share | | $ | 2.58 | | | $ | 2.14 | | | $ | 1.91 | |
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Anti-dilutive options | | 885 | | | 1,506 | | | 1,421 | |
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Stock-based Compensation |
The Company accounts for stock-based compensation in accordance with share-based payment accounting guidance. The guidance requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost is recognized over the period during which an employee is required to provide service in exchange for the award, typically the vesting period. |
Fair Value of Financial Instruments |
The Company accounts for certain assets and liabilities at fair value in accordance with the accounting guidance applicable to fair value measurements and disclosures. The carrying values of cash, cash equivalents, accounts receivable, accounts payable, accrued expenses, other accrued liabilities and short-term obligations are deemed to be reasonable estimates of their fair values because of their short-term nature. The fair values of investments are based on quoted market prices for those or similar investments. |
New Accounting Guidance |
Testing Indefinite-Lived Intangible Assets for Impairment: In July 2012, new accounting guidance was issued regarding the requirement to test indefinite-lived intangible assets for impairment. Previous guidance required an entity to test indefinite-lived intangible assets for impairment, on at least an annual basis, by comparing the fair value of the asset with its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, an entity should recognize an impairment loss in the amount of that excess. Under the new guidance, an entity has an option not to calculate annually the fair value of an indefinite-lived intangible asset if the entity determines that it is not more likely than not that the asset is impaired. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the asset is impaired, then performing the quantitative test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the quantitative test and record any impairment if necessary. This guidance was adopted by the Company effective January 1, 2013, and it did not have any impact on the Company's financial position, results of operations or cash flows. |