| 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.”).
In accordance with ASC 280, Segment Reporting, our operations are
reported as a single operating segment.
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
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.
Revision of Previously Issued Financial Statements
Cost of goods sold, gross profit and operating expenses for the
three months ended March 31, 2016 reflected in the statements
of operations have been revised from amounts previously reported to
correct immaterial errors previously disclosed in Note 1, Revision
of Previously Issued Financial Statements in our Annual Report on
Form 10-K
In addition, in accordance with SEC requirements, 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.
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.
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, net.
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, net.
For the three month periods ended March 31, 2017, foreign
currency transactions resulted in a loss of $24 compared to a gain
of $199 for the same period in 2016.
Revenue Recognition
We recognize revenue in accordance with Financial Accounting
Standards Board (FASB) Accounting Standards Codification
(ASC) 985-605, Software – Revenue
Recognition 985-605-25, Revenue Recognition –
Multiple Element Arrangements,
Product and License Revenue includes hardware products and software
licenses. Services and Other 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 non-software
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
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 985-605 605-25)
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
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.
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
Inventories, net
Inventories, consisting principally of hardware and component
parts, are stated at the lower of cost or net realizable value.
Cost is determined using the first-in-first-out
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.
Long Term Investments
Included in Other Assets are minority equity investments in
companies we believe may be beneficial in executing our strategy.
At March 31, 2017 and December 31, 2016, investments were
$4,073. 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
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, 2017 and December 31, 2016, 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.
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 and intangible
assets with indefinite lives 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 two-step
In accordance with ASC 350, we consider the company to be two
reporting units, the operations of eSignLive and the remainder of
our operations.
Stock-Based Compensation
We have stock-based employee compensation plans, described in Note
6. ASC 718-10, 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 May 2014, the FASB issued Accounting Standards
Update No. 2014-09, 2014-09), 2014-09
ASU 2014-09 2014-09 No. 2015-14, Revenue from Contracts with
Customers: Deferral of Effective Date
In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with
Customers: Principal versus Agent Considerations (Reporting Revenue
Gross versus Net)
In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with
Customers: Identifying Performance Obligations and Licensing
In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with
Customers: Narrow-Scope Improvements and Practical Expedients
In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and
Improvements to Topic 606, Revenue from Contracts with
Customers No. 2014-09.
We are currently evaluating the impact of the new revenue
recognition guidance including any impacts on associated processes,
systems, and internal controls. Our evaluation includes
determining the unit of account (i.e., performance obligations) and
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 as compared to current
practice. We expect to recognize term license revenue upon
delivery, rather than over the term of the arrangement. We
expect to capitalize 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.
We will adopt this guidance as of the first quarter of 2018. We
expect to determine the transition method in the second quarter of
2017.
We adopted ASU 2015-11, Inventory (Topic 330) -
Simplifying the Measurement of Inventory
In February 2016, The FASB issued Accounting Standards
Update No. 2016-02, Leases 2016-02 2016-02
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and
Other (Topic 350): Simplifying the Test for Goodwill
Impairment
In March 2017, the FASB issued ASU No. 2017-07, Compensation - Retirement
Benefits (Topic 715): Improving the Presentation of Net Periodic
Pension Cost and Net Periodic Postretirement Benefit Cost |
