| Summary of Significant Accounting Policies | Note 1
– Summary of Significant Accounting Policies
Nature of
Operations
VASCO Data
Security International, Inc. 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 (U.K).,
and the United States (U.S.).
In accordance
with ASC 280, Segment Reporting, our operations are reported as a
single operating segment.
Revision
of Previously Issued Financial Statements
We have
revised amounts reported in previously issued financial statements
for periods presented in the Annual Report on Form 10-K related to
costs of services erroneously recorded as operating expenses. We
evaluated the aggregate effects of the errors to our previously
issued financial statements in accordance with SEC Staff Accounting
Bulletins No. 99 and No. 108 and, based upon quantitative and
qualitative factors, determined that the errors were not material
to the previously issued financial statements and disclosures
included in our Annual Report on Form 10-K for the year ended
December 31, 2015 or for any quarterly periods included therein or
through our most recent Quarterly Report on Form 10-Q. As part of
this evaluation, we considered a number of qualitative factors,
including, among others, that the errors did not change total
revenue, did not change operating income, and did not mask a change
in earnings or other trends when considering the overall
competitive and economic environment within the industry during the
periods.
In addition,
in accordance with SEC requirements, beginning in 2016, revenue is
presented in two categories, Product and License Revenue and
Service and Other Revenue. Product and License Revenue includes
hardware products and software licenses. Service and Other Revenue
includes software as a service (“SaaS”) solutions,
maintenance and support, and professional services. Additional
adjustments were made to present cost of goods sold consistent with
these two categories. Prior periods have been adjusted to reflect
the current presentation.
The following
table presents the effect of the aforementioned revisions on our
consolidated statement of operations
For the year ended
December 31, 2015
As previously Adjustment Corrected
Revenue
Product and
License $ $ 218,908 $ 218,908
Service and
Other 22,535 22,535
Total Revenue 241,443 241,443
Cost of Goods
Sold
Product and
License 95,028 95,028
Service and
Other 2,875 2,875
Total Cost of Goods
Sold 95,351 2,552 97,903
Gross Profit 146,092 (2,552 ) 143,540
Operating
costs
Sales and
marketing 39,670 (1,471 ) 38,199
Research and
development 18,538 (1,081 ) 17,457
General and
administrative 32,489 0 32,489
Amortization of purchased
intangibles 4,942 0 4,942
Total operating
costs 95,639 (2,552 ) 93,088
Operating
income $ 50,453 $ 0 $ 50,453
For the year ended
December 31, 2014
As previously Adjustment Corrected
Revenue
Product and
License $ $ 182,556 $ 182,556
Service and
Other 18,981 18,981
Total Revenue 201,537 201,537
Cost of Goods
Sold
Product and
License 72,802 72,802
Service and
Other 3,093 3,093
Total Cost of Goods
Sold 73,771 2,124 75,895
Gross Profit 127,766 (2,124 ) 125,642
Operating
costs
Sales and
marketing 43,362 (1,173 ) 42,189
Research and
development 19,497 (951 ) 18,546
General and
administrative 22,287 - 22,287
Amortization of purchased
intangibles 4,532 - 4,532
Total operating
costs 89,678 (2,124 ) 87,554
Operating
income $ 38,088 $ - $ 38,088
Financial
information presented in the accompanying notes to these
consolidated financial statements reflect the correction of these
errors. Periods not presented herein will be revised, as
applicable, as included in future filings.
Principles
of Consolidation
The
consolidated financial statements include the accounts of VASCO
Data Security International, Inc. and its wholly owned
subsidiaries. Intercompany accounts and transactions have been
eliminated in consolidation.
As further
described in Note 3, during January 2011 we acquired 100% of the
stock of DigiNotar B.V. Effective September 20, 2011,
DigiNotar B.V. was declared bankrupt in The Netherlands,
transferring effective control over DigiNotar B.V. to the
bankruptcy trustee. Accordingly, assets, liabilities and operating
activities related to DigiNotar B.V. are reflected as 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. Revenues 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 or
(losses) resulting from foreign currency transactions were $111,
($1,247), and ($1,382) in 2016, 2015, and 2014, respectively, and
are included in other income, net in the consolidated statements of
operations.
The financial
position and results 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, net.
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
Product and
License Revenue includes hardware products and software licenses.
Services and Other Revenue includes software as a service
(“SaaS”), maintenance and support, and professional
services.
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 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.
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 devices and host
software are delivered elements, we use the Residual Method for
determining the amount of revenue to recognize for token and
software licenses if we have vendor-specific objective evidence
(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 for undelivered elements is established 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. The estimated selling price of PCS items
is based on an established percentage of the user license fee
attributable to the specific software. 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. Product and License
Revenue:
2. SaaS:
3. Maintenance and
Support Agreements:
4. Professional
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 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 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 maturities
at acquisition of three months or less. Cash and cash equivalents
are 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 are high-quality
commercial paper and bank certificates of deposit with maturities
at acquisition of more than three months and less than twelve
months.
Accounts
Receivable and Allowance for Doubtful Accounts
The credit
worthiness of customers 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 deteriorates, resulting in an
impairment of their ability to make payments, additional allowances
may be required. Generally, accounts are charged off when decision
is taken to no longer pursue collection.
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 where it
appears that the carrying cost of the inventory may not be
recovered through subsequent sale of the inventory. We analyze 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 or retirements are recorded as incurred, at
which time related costs and accumulated depreciation are removed
from the accounts. Depreciation expense for the years ended
December 31, 2016, 2015, and 2014 of $1,928, $1,345, and
$1,928, respectively, is included in operating expenses
Long Term
Investments
Included in
Other Assets are minority equity investments in companies we
believe may be beneficial in executing our strategy. At
December 31, 2016, investments were $4,073. There were no
investments in 2015. In accordance with ASC 325, the investments
are recorded at cost and evaluated for impairment annually or
whenever events or changes in circumstances indicate that the
carrying value may not be recoverable.
Cost of
Goods Sold
Included in
product cost of goods sold are direct product costs. Cost of goods
sold related to service revenues are primarily costs related to
SaaS solutions, including personnel and equipment costs, and
personnel costs of employees providing professional services and
maintenance and support.
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 and in income in the period
that includes the enactment date.
We monitor
our potential income tax exposures as required by ASC
740, Income
Taxes
We have
significant net operating loss and other deductible carryforwards
in certain jurisdictions available to reduce the liability on
future taxable income. A valuation allowance 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
December 31, 2016, and 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 by using available
market information and appropriate valuation methodologies, as
defined in ASC 820, Fair Value
Measurements.
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.
Goodwill
and Other Intangibles
Intangible
assets arising from business combinations, such as acquired
technology, customer relationships, and other intangible assets,
are originally recorded at fair value. Intangible assets other than
patents with definite lives are amortized over the useful life,
generally three to seven years for proprietary technology and five
to twelve years for customer relationships. Patents are amortized
over the life of the patent, generally 20 years in the
U.S.
Goodwill
represents the excess of purchase price over the fair value of net
identifiable assets acquired in a business combination. We assess
the impairment of goodwill each November or whenever events or
changes in circumstances indicate that the carrying value may not
be recoverable. The Company’s impairment assessment begins
with a qualitative assessment to determine whether it is more
likely than not that the fair value of a reporting unit is less
than its carrying value. The qualitative assessment includes
comparing the overall financial performance of the reporting units
against the planned results used in the last quantitative goodwill
impairment test. Additionally, each reporting unit’s fair
value is assessed in light of certain events and circumstances,
including macroeconomic conditions, industry and market
considerations, cost factors, and other relevant entity-and
reporting unit specific events. The selection and assessment of
qualitative factors used to determine whether it is more likely
than not that the fair value of a reporting unit exceeds the
carrying value involves significant judgments and estimates. If it
is determined under the qualitative assessment that it is more
likely than not that the fair value of a reporting unit is less
than its carrying value, then a two-step quantitative impairment
test is performed. Under the first step, the estimated fair value
of the reporting unit is compared with its carrying value
(including goodwill). If the fair value of the reporting unit
exceeds its carrying value, step two does not need to be performed.
If the estimated fair value of the reporting unit is less than its
carrying value, an indication of goodwill impairment exists for the
reporting unit and the enterprise must perform step two of the
impairment test (measurement). Under step two, an impairment loss
is recognized for any excess of the carrying amount of the
reporting unit’s goodwill over the implied fair value of that
goodwill. The implied fair value of goodwill is determined by
allocating the fair value of the reporting unit in a manner similar
to a purchase price allocation in acquisition accounting. The
residual amount after this allocation is the implied fair value of
the reporting unit goodwill. Fair value of the reporting unit under
the two-step assessment is determined using a combination of both
income and market-based variation approaches. The inputs and
assumptions to valuation methods used to estimate the fair value of
reporting units involves significant judgments. In accordance with
ASC 350, we consider the company to be two reporting units, the
operations of eSignLive and the remainder of our operations. Our
qualitative assessment of each reporting unit did not indicate an
impairment. Accordingly, we did not recognize any impairment for
the year ended December 31, 2016.
Stock-Based Compensation
We have
stock-based employee compensation plans, which are described more
fully in Note 9. ASC 718, Compensation-Stock
Compensation
Retirement
Benefits
We record
annual expenses relating to our pension benefit plans based on
calculations which include various actuarial assumptions, including
discount rates, assumed asset rates of return, compensation
increases, and turnover rates. We review our actuarial assumptions
on an annual basis and make modifications to the assumptions based
on current rates and trends. The effects of gains, losses, and
prior service costs and credits are amortized over the average
service life. The funded status, or projected benefit obligation
less plan assets, for each plan, is reflected in our consolidated
balance sheets using a December 31 measurement date.
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 2014-9 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) a retrospective approach with the
cumulative effect of initially adopting ASU 2014-09 recognized at
the date of adoption. We will adopt this guidance at the beginning
of the first quarter of 2018. We expect to determine the transition
method in the second quarter of 2017.
We are
currently evaluating the impact of our pending adoption of the new
revenue recognition guidance on revenue transactions, including any
impacts on associated processes, systems, and internal controls.
Our evaluation has included determining whether the unit of account
(i.e., performance obligations) will change as compared to current
GAAP, as well as determining the standalone selling price of each
performance obligation. Standalone selling prices under the
new guidance may not be substantially different from our current
methodologies of establishing fair value on multiple element
arrangements. Based on initial assessments, we have identified
certain arrangements where revenue may be recognized earlier
compared to current GAAP. We expect to recognize license revenue
from term licenses upon delivery of the software, rather than over
the term of the arrangement. We expect to begin capitalizing
certain sales commissions upon adoption of the new standard and are
currently in the process of evaluating the period over which to
amortize these capitalized costs. We continue to evaluate the
impact of this guidance and subsequent amendments on our
consolidated financial position, results of operations, and cash
flows, and any preliminary assessments are subject to
change.
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, to improve accounting for
share-based payment transactions as part of the FASB’s
simplification initiative. The ASU changes certain aspects of
accounting for share-based payment award transactions, including:
(1) recognition of excess tax benefits and tax deficiencies as
income tax expense or benefit instead of additional paid-in
capital; (2) classification of excess tax benefits on the
statement of cash flows, and (3) accounting for forfeitures. The
other provisions of ASU 2016-09 are immaterial to the Company. ASU
2016-09 is effective for fiscal years beginning after
December 15, 2016. Early adoption is permitted. We have early
adopted ASU 2016-09 in our consolidated financial statements as of
January 1, 2016 and applicable aspects described were adopted
prospectively. Prior periods were not retrospectively
adjusted.
The adoption
of ASU 2016-09 resulted in an increase to the tax provision of $169
that would have otherwise been debited to additional paid in
capital. Similarly, as a result of the adoption of ASU 2016-09,
cashflows from operating activities decreased $169 and cash flows
from financing activities decreased by the same amount. We also
elected to begin accounting for forfeitures when they occur. The
impact of this policy change was immaterial to our consolidated
financial statements. The impact of this ASU on future periods is
dependent on our stock price at the time restricted stock awards
vest. |
