| Summary of Significant Accounting Policies | Note 1 - Summary of Significant Accounting Policies
Nature of Operations
VASCO Data Security International, Inc. (“VASCO”) and
its wholly owned subsidiaries design, develop, market and support
hardware and software security systems that manage and secure
access to information assets. VASCO has operations in Austria,
Australia, Belgium, Brazil, Canada, China, France, India, Japan,
The Netherlands, Singapore, Switzerland, the United Arab Emirates,
the United Kingdom, and the United States (“U.S.”).
Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements include the accounts of VASCO and its subsidiaries and
have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission regarding interim financial
reporting. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for
complete financial statements and should be read in conjunction
with the audited consolidated financial statements included in the
company’s Annual Report on Form 10-K for the year ended
December 31, 2015.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements have been prepared on the same
basis as the audited consolidated financial statements, and include
all adjustments, consisting only of normal recurring adjustments,
necessary for the fair presentation of the results of the interim
periods presented. All significant intercompany accounts and
transactions have been eliminated. The operating results for the
interim periods presented are not necessarily indicative of the
results expected for a full year.
Principles of Consolidation
The consolidated financial statements include the accounts of VASCO
and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in
consolidation.
During 2011, our wholly-owned Dutch subsidiary, DigiNotar B.V., was
declared bankrupt. The court-appointed trustee is responsible for
the business activities, administration and liquidation of
DigiNotar B.V. Accordingly, related assets, liabilities and
activities are reflected in discontinued operations.
Estimates and Assumptions
The preparation of financial statements in conformity with
accounting principles generally accepted in the U.S. 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 and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those
estimates.
Foreign Currency Translation and Transactions
The financial position and results of the operations of the
majority of the company’s foreign subsidiaries are measured
using the local currency as the functional currency. Accordingly,
assets and liabilities are translated into U.S. Dollars using
current exchange rates as of the balance sheet date. Revenue and
expenses are translated at average exchange rates prevailing during
the year. Translation adjustments arising from differences in
exchange rates are charged or credited to other comprehensive
income. Gains and losses resulting from foreign currency
transactions are included in the consolidated statements of
operations in other income (expense).
The financial position and results of operations of our operations
in Canada, Singapore and Switzerland are measured in U.S. Dollars.
For these subsidiaries, gains and losses that result from foreign
currency transactions are included in the consolidated statements
of operations in other income (expense).
For the three month periods ended March 31, 2016, foreign
currency transactions resulted in a gain of $199 compared to a loss
of $617 for the same period in 2015.
Revenue Recognition
We recognize revenue in accordance with Financial Accounting
Standards Board (FASB) Accounting Standards Codification (ASC)
985-605, Software – Revenue
Recognition Revenue Recognition –
Multiple Element Arrangements,
Revenue is recognized when there is persuasive evidence that an
arrangement exists, delivery has occurred, the fee is fixed or
determinable and collection of the revenue is probable.
In multiple-element arrangements, some of our products are
accounted for under the software provisions of ASC 985-605 and
others under the provisions that relate to the sale of non-software
products.
In our typical multiple-element arrangement, the primary
deliverables include:
1. a client component (i.e., an item
that is used by the person being authenticated in the form of
either a new standalone hardware device or software that is
downloaded onto a device the customer already owns),
2. host system software that is
installed on the customer’s systems (i.e., software on the
host system that verifies the identity of the person being
authenticated) or licenses for additional users on the host system
software, if the host system software had been installed
previously, and
3. post contract support
(“PCS”) in the form of maintenance on the host system
software or support.
Our multiple-element arrangements may also include other items that
are usually delivered prior to the recognition of any revenue and
incidental to the overall transaction, such as initialization of
the hardware device, customization of the hardware device itself or
the packaging in which it is delivered, deployment services where
we deliver the device to our customer’s end-use customer or
employee and, in some limited cases, professional services to
assist with the initial implementation of a new customer.
In multiple-element arrangements that include a hardware client
device, we allocate the selling price among all elements, delivered
and undelivered, based on our internal price lists and the
percentage of the selling price of that element, per the price
list, to the total of the estimated selling price of all of the
elements per the price list. Our internal price lists for both
delivered and undelivered elements were determined to be reasonable
estimates of the selling price of each element based on a
comparison of actual sales made to the price list for each item
delivered and to vendor specific objective evidence
(“VSOE”) for undelivered items.
Undelivered elements primarily are PCS. The method by which we
determine VSOE has validated that the price lists are reasonable
estimates of the selling price for PCS. The estimated selling price
of PCS items is based on an established percentage of the user
license fee attributable to the specific software and is applied
consistently to all PCS arrangements. The percentage we use to
establish VSOE, which is also generally consistent with the
percentage used in the price list, is developed using the
“bell curve method”. Under this method, we conclude
VSOE exists when a substantial majority of PCS renewals are within
a narrow range of pricing.
In multiple-element arrangements that include a software client
device, we account for each element under the standards of ASC
985-605 related to software. When software client device and host
software are delivered elements, we use the Residual Method (ASC
605-25) for determining the amount of revenue to recognize for
token and software licenses if we have VSOE for all of the
undelivered elements. Any discount provided to the customer is
applied fully to the delivered elements in such an arrangement.
VSOE of fair value of PCS agreements is based on customer renewal
transactions on a worldwide basis. In sales arrangements where VSOE
of fair value has not been established, revenue for all elements is
deferred and amortized over the life of the arrangement.
For transactions other than multiple-element arrangements, we
recognize revenue as follows:
1. Hardware Revenue and License
Fees:
2. Maintenance and Support
Agreements:
3. Services:
4. Consulting and Education
Services:
We recognize revenue from sales to distributors and resellers on
the same basis as sales made directly to customers. We recognize
revenue when there is persuasive evidence that an arrangement
exists, delivery has occurred, the fee is fixed or determinable and
collection of the revenue is probable.
For large-volume transactions, we may negotiate a specific price
that is based on the number of users of the software license or
quantities of hardware supplied. The per unit prices for
large-volume transactions are generally lower than transactions for
smaller quantities and the price differences are commonly referred
to as volume-purchase discounts.
All revenue is reported on a net basis, excluding any sales taxes
or value added taxes.
Cash and Cash Equivalents
Cash and cash equivalents are stated at cost plus accrued interest,
which approximates fair value. Cash equivalents are high-quality
short term money market instruments and commercial paper, with
original maturities of three months or less. Cash is held by a
number of U.S. and non-U.S. commercial banks and money market
investment funds.
Short Term Investments
Short term investments are stated at cost plus accrued interest,
which approximates fair value. Short term investments consist of
bank certificates of deposit and high quality commercial paper with
original maturities of more than three and less than twelve
months.
Accounts Receivable and Allowance for Doubtful Accounts
The creditworthiness of customers (including distributors and
resellers) is reviewed prior to shipment. A reasonable assurance of
collection is a requirement for revenue recognition. Verification
of credit and/or the establishment of credit limits are part of the
customer contract administration process. Credit limit adjustments
for existing customers may result from the periodic review of
outstanding accounts receivable. The company records trade accounts
receivable at invoice values, which are generally equal to fair
value.
We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make payments for
goods and services. We analyze accounts receivable balances,
customer credit-worthiness, current economic trends and changes in
our customer payment timing when evaluating the adequacy of the
allowance for doubtful accounts. The allowance is based on a
specific review of all significant past-due accounts. If the
financial condition of our customers deteriorate, resulting in an
impairment of their ability to make payments, additional allowances
may be required.
Inventories
Inventories, consisting principally of hardware and component
parts, are stated at the lower of cost or market. Cost is
determined using the first-in-first-out (FIFO) method. We write
down inventory when it appears that the carrying cost of the
inventory may not be recovered through subsequent sale of the
inventory. The company analyzes the quantity of inventory on hand,
the quantity sold in the past year, the anticipated sales volume in
the form of sales to new customers as well as sales to previous
customers, the expected sales price and the cost of making the sale
when evaluating the valuation of our inventory. If the sales volume
or sales price of a specific model declines significantly,
additional write downs may be required.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of
the related assets ranging from three to seven years. Additions and
improvements are capitalized, while expenditures for maintenance
and repairs are charged to operations as incurred. Gains or losses
resulting from sales, disposals, or retirements are recorded as
incurred, at which time related costs and accumulated depreciation
are removed from the accounts.
Goodwill and Other Intangibles
We account for goodwill and other intangible assets in accordance
with ASC Topic 350-20, Goodwill and
Other
We assess the impairment of goodwill and intangible assets with
indefinite lives each November or whenever events or changes in
circumstances indicate that the carrying value may not be
recoverable. Factors considered important which could trigger an
impairment review include significant underperformance relative to
expected historical or projected future operating results,
significant changes in the manner of our use of the acquired assets
or the strategy for our overall business, and significant negative
industry or economic trends. In accordance with ASC 350, we
consider the company to be one reporting unit. Fair value is
determined using a market approach using our stock price which is a
level 1 valuation, as defined by ASC 820, Fair Value
Measurements
Research and Development Costs
Costs for research and development, principally the design and
development of hardware, and the design and development of software
prior to the determination of technological feasibility, are
expensed as incurred on a project-by-project basis.
Software Development Costs
We capitalize software development costs in accordance with ASC
985-20, Costs of
Software to be Sold, Leased, or Marketed
Income Taxes
We account for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. We measure deferred tax assets and liabilities using
enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered
or settled. We recognize the effect of a change in tax rates on
deferred tax assets and liabilities in income in the period that
includes the enactment date.
We monitor our potential income tax exposures as required by ASC
740-10, Income
Taxes
We have significant foreign tax credit, net operating loss, and
other deductible carryforwards in certain jurisdictions available
to reduce the liability on future taxable income. A valuation
reserve has been provided to offset some of these future benefits
because we have not determined that their realization is more
likely than not.
Fair Value of Financial Instruments
At March 31, 2016 and December 31, 2015, our financial
instruments were cash equivalents, short term investments, accounts
receivable, accounts payable and accrued liabilities. The estimated
fair value of our financial instruments has been determined using
level one inputs as defined in ASC 820, Fair Value Measurements and
Disclosures
Accounting for Leases
All of our leases are operating leases. Rent expense on facility
leases is charged evenly over the life of the lease, regardless of
the timing of actual payments.
Stock-Based Compensation
We have stock-based employee compensation plans, described in Note
9. ASC 718-10, Stock
Compensation
Warranty
Warranties are provided on the sale of certain of our products and
an accrual for estimated future claims is recorded at the time
revenue is recognized. We estimate the cost based on past claims
experience, sales history and other considerations. We regularly
assess the adequacy of our estimates and adjust the amounts as
necessary. Our standard practice is to provide a warranty on our
hardware products for either a one or two year period after the
date of purchase. Customers may purchase extended warranties
covering periods from one to four years after the standard warranty
period. We defer the revenue associated with the extended warranty
and recognize it into income on a straight-line basis over the
extended warranty period. We have historically experienced minimal
actual claims over the warranty period.
Recently Issued Accounting Pronouncements
In November 2015, the FASB issued Accounting Standards Update
No. 2015-17, Balance Sheet
Classification of Deferred Taxes
In September 2015, the FASB issued Accounting Standards Update
No. 2015-16, Simplifying the Accounting
for Measurement-Period Adjustments
In May 2014, the FASB issued Accounting Standards Update
No. 2014-09, Revenue from Contracts with
Customers
ASU 2014-09 is effective for annual periods beginning after
December 15, 2016, and interim periods within such annual
periods, using either of the following transition methods:
(i) a full retrospective approach reflecting the application
of the standard in each prior reporting period with the option to
elect certain practical expedients, or (ii) an approach with
the cumulative effect of initially adopting ASU 2014-09 recognized
at the date of adoption (which includes additional footnote
disclosures).
In August 2015, the FASB issued Accounting Standards Update
No. 2015-14, Revenue from Contracts with
Customers: Deferral of Effective Date
We are currently evaluating the impact of our pending adoption of
ASU 2014-09 and ASU 2015-14 on our consolidated financial
statements and have not yet determined the method by which we will
adopt the standard and the date of adoption.
On March 17, 2016, the FASB issued Accounting Standards Update No.
2016-08, Revenue from Contracts with Customers - Principal
versus Agent Considerations (Reporting Revenue Gross versus
Net) Revenue from
Contracts with Customers - Identifying Performance Obligations and
Licensing
In February 2016, The FASB issued Accounting Standards Update No.
2016-02, Leases
On March 30, 2016, the FASB issued ASU 2016-09, Improvements to Employee
Share-Based Payment Accounting
As a result of the adoption of ASU 2016-09, during the three months
ended March 31, 2016 the provision for income taxes was reduced by
$91 for the windfall benefit of restricted stock vesting that,
absent the adoption of ASU 2016-09, would have otherwise been
credited to additional paid in capital. Similarly, for the three
months ended March 31, 2016, as a result of the adoption of ASU
2016-09, cashflows from operating activities were $91 greater and
cashflows from financing activities were $91 less. The impact of
this ASU on future periods is dependent on our stock price at the
time restricted stock awards vest. |
