| Organization and Summary of Significant Accounting Policies | 1. Organization and Summary of Significant Accounting
Policies
Nature of Operations
PCTEL, Inc. (“PCTEL”, the “Company”,
“we”, “ours”, and “us”)
delivers P C Tel
Segment Reporting
PCTEL operates in two segments for reporting purposes, Connected
Solutions and RF Solutions. The Company’s chief operating
decision maker uses the profit and loss results through operating
profit and identified assets for the Connected Solutions and RF
Solutions segments to make operating decisions. Each segment has
its own segment manager as well as its own engineering, sales and
marketing, and operational general and administrative functions.
All of the Company’s accounting and finance, human resources,
IT and legal functions are provided on a centralized basis through
the corporate function. The Company manages its balance sheet and
cash flows centrally at the corporate level, with the exception of
trade accounts receivable and inventory which is managed at the
segment level. Each of the segment managers reports to and
maintains regular contact with the chief operating decision maker
to discuss operating activities, financial results, forecasts, or
plans for the segment.
Connected Solutions Segment
Connected Solutions designs and delivers performance critical
antennas and site solutions for wireless networks globally. The
Company’s antennas and site solutions support networks
worldwide, including SCADA for oil, gas and utilities, fleet
management, industrial operations, healthcare, small cell and
network timing deployment, defense, public safety, education, and
broadband access. PCTEL’s performance critical
MAXRAD ®
There are many competitors for antenna products, as the market is
highly fragmented. Competitors include Laird (Cushcraft,
Centurion, and Antennex brands), Mobile Mark, Radiall/Larsen,
Comtelco, Wilson, Commscope (Andrew products), Kathrein, among
others. The Company seeks out product applications that
command a premium for product performance and customer service, and
avoid commodity markets.
PCTEL maintains expertise in several technology areas in order to
be competitive in the antenna engineered site solutions
market. These include radio frequency engineering, mobile
antenna design and manufacturing, mechanical engineering, product
quality and testing, and wireless network engineering.
RF Solutions Segment
RF Solutions develops and provides performance critical test
equipment, software, and engineering services for wireless
networks. The industry relies upon PCTEL to benchmark network
performance, analyze trends, and optimize wireless networks.
SeeGull ®
On February 27, 2015, PCTEL, Inc. acquired substantially all
of the assets of, and assumed certain specified liabilities of,
Nexgen Wireless, Inc. (“Nexgen”), pursuant to an Asset
Purchase Agreement dated as of February 27, 2015. The business
acquired from Nexgen is based in Schaumburg, Illinois. Nexgen
provides a network analysis tool portfolio now known as
SeeHawk ®
PCTEL maintains expertise in several technology areas in order to
be competitive in the scanning receiver and related engineering
services market. These include radio frequency engineering, DSP
engineering, manufacturing, mechanical engineering, product quality
and testing, and wireless network engineering.
Basis of Consolidation
These consolidated financial statements include the accounts of the
Company and its subsidiaries. All intercompany accounts and
transactions have been eliminated.
On April 30, 2013, the Company divested all material assets
associated with its PCTEL Secure, LLC subsidiary’s
ProsettaCore™ technology to Redwall Technologies, LLC
(“Redwall”), a development organization that
specializes in mobile security, military and defense projects and
systems, and critical national infrastructure. Under the terms of
the agreement, Redwall acquired the server and device software (the
“Software”), the underlying intellectual property, and
complete development responsibility for the security products. At
the closing of the divestiture, the Company received no upfront
cash payment, but has the right to receive a royalty of 7% of the
net sale price of each future sale or license of the Software and
each provision of services related to the Software, if any. Under
the agreement, royalties will not exceed $10.0 million in the
aggregate. In accordance with accounting for discontinued
operations, the consolidated financial statements separately
reflect the results of PCTEL Secure as discontinued operations for
all periods presented. The prior period results have been
restated to reflect this accounting treatment.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles 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 revenues and expenses during
the periods reported. Actual results could differ from those
estimates.
Foreign Operations
The Company is exposed to foreign currency fluctuations due to its
foreign operations and because products are sold internationally.
The functional currency for the Company’s foreign operations
is predominantly the applicable local currency. Accounts of foreign
operations are translated into U.S. dollars using the year-end
exchange rate for assets and liabilities and average monthly rates
for revenue and expense accounts. Adjustments resulting from
translation are included in accumulated other comprehensive income
(loss), a separate component of stockholders’ equity. Gains
and losses resulting from other transactions originally in foreign
currencies and then translated into U.S. dollars are included in
the consolidated statements of operations. Net foreign exchange
losses resulting from foreign currency transactions included in
other income, net were $33, $49, and $26 in the years ended
December 31, 2015, 2014, and 2013, respectively.
Fair Value of Financial Instruments
The Company follows accounting pronouncements for Fair Value
Measurements and Disclosures, which establishes a fair value
hierarchy that requires the Company to maximize the use of
observable inputs and minimize the use of unobservable inputs when
measuring fair value. Fair value is a market-based measurement
that should be determined based on assumptions that market
participants would use in pricing an asset or liability. As a basis
for considering such assumptions, a three-tier fair value hierarchy
has been established, which prioritizes the inputs used in
measuring fair value as follows:
Level 1: inputs are unadjusted quoted prices in active markets for
identical assets or liabilities.
Level 2: inputs other than Level 1 that are observable, either
directly or indirectly, such as quoted prices in active markets for
similar assets and liabilities, quoted prices for identical or
similar assets or liabilities in markets that are not active, or
other inputs that are observable or can be corroborated by
observable market data for substantially the full term of assets or
liabilities.
Level 3: unobservable inputs that are supported by little or no
market activity and that are significant to the fair value of the
assets or liabilities.
Cash equivalents are measured at fair value and investments are
recognized at amortized cost in the Company’s financial
statements. Accounts receivable and other investments are financial
assets with carrying values that approximate fair value due to the
short-term nature of these assets. Accounts payable is a financial
liability with a carrying value that approximates fair value due to
the short-term nature of these liabilities.
Cash and Cash Equivalents and Investments
The Company’s cash and investments consist of the
following:
December 31,
December 31,
2015 2014
Cash $ 6,077 $ 19,731
Cash equivalents 978 701
Short-term investments 24,728 39,577
$ 31,783 $ 60,009
Cash and Cash equivalents
At December 31, 2015, cash and cash equivalents included bank
balances and investments with original maturities less than 90
days. At December 31, 2015 and 2014, the Company’s cash
equivalents were invested in highly liquid AAA rated money market
funds that are required to comply with Rule 2a-7 under the
Investment Company Act of 1940. Such funds utilize the amortized
cost method of accounting, seek to maintain a constant $1.00 per
share price, and are redeemable upon demand. The Company restricts
its investments in AAA money market funds to those invested 100% in
either short-term U.S. Government Agency securities or bank
repurchase agreements collateralized by these same securities. The
fair values of these money market funds are established through
quoted prices in active markets for identical assets (Level 1
inputs). The cash in the Company’s U.S. banks is insured by
the Federal Deposit Insurance Corporation up to the insurable limit
of $250.
At December 31, 2015, the Company had $6.1 million in cash and
$1.0 million in cash equivalents and at December 31, 2014, the
Company had $19.7 million in cash and $0.7 million in cash
equivalents. The Company had $1.3 million and $0.5 million of cash
and cash equivalents in foreign bank accounts at December 31,
2015 and at December 31, 2014, respectively. The Company plans
to repatriate its cash from its subsidiary in Israel during 2016
because we expect to cease operations of this subsidiary during
2016. The Company expects to incur incremental income tax of $0.1
million related to the repatriation of the funds from Israel. The
Company does not expect the foreign currency exchange related to
the repatriation of these funds to have a material impact on the
financial statements. As of December 31, 2015, the Company had
no intentions of repatriating the cash in its foreign bank accounts
in the U.K. or China. If the Company decides to repatriate the cash
in the foreign bank accounts, it may experience difficulty in doing
so in a timely manner. The Company may also be exposed to foreign
currency fluctuations and taxes if it repatriates these funds. The
Company’s cash in its foreign bank accounts is not
insured.
Investments
At December 31, 2015 and 2014, the Company’s short-term
investments consisted of pre-refunded municipal bonds, U.S.
government agency bonds, AA or higher rated corporate bonds and
certificates of deposit, all classified as held-to-maturity. At
December 31, 2014, the Company’s short-term investments
also included mutual funds classified as available-for-sale and
recorded at fair value.
At December 31, 2015, the Company had invested $7.6 million in
AA rated or higher corporate bond funds, $7.5 million in
pre-refunded municipal bonds and taxable bond funds, $7.0 million
in U.S. government agency bonds, $2.7 million in certificates of
deposit. The income and principal from the pre-refunded
municipal bonds is secured by an irrevocable trust of U.S. Treasury
securities. The bonds have original maturities greater than 90 days
and mature in 2015. The Company’s bonds are recorded at the
purchase price and carried at amortized cost. The net unrealized
gains (losses) were approximately $1 and $(5) at December 31,
2015 and December 31, 2014, respectively. Approximately 11%
and 5% of the Company’s bonds were protected by bond default
insurance at December 31, 2015 and 2014, respectively.
At December 31, 2014, the Company had invested $13.5 million
in U.S. government agency bonds, $11.8 million in certificates of
deposit, $7.2 million in AA rated or higher corporate bond funds,
$5.2 million in pre-refunded municipal bonds and taxable bond
funds, and $2.0 million in mutual funds.
The Company categorizes its financial instruments within a fair
value hierarchy according to accounting guidance for fair
value. The fair value hierarchy is described under the Fair
Value of Financial Instruments in Note 1. For the Level 2
investments, the Company uses quoted prices of similar assets in
active markets.
Cash equivalents and Level 1 and Level 2 investments measured at
fair value were as follows:
December 31, 2015 December 31, 2014
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Cash equivalents:
Money market funds and other cash equivalents $ 978 $ 0 $ 0 $ 978 $ 701 $ 0 $ 0 $ 701
Investments:
Corporate bonds 0 7,558 0 7,558 0 7,155 0 7,155
Pre-refunded municipal bonds 0 7,497 0 7,497 0 5,162 0 5,162
US government agency bonds 0 7,008 0 7,008 0 13,502 0 13,502
Certificates of deposit 2,666 0 0 2,666 11,782 0 0 11,782
Mutual funds 0 0 0 0 1,971 0 0 1,971
Total $ 3,644 $ 22,063 $ 0 $ 25,707 $ 14,454 $ 25,819 $ 0 $ 40,273
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at invoiced amount with standard
net terms for most customers that range between 30 and 60 days. The
Company extends credit to its customers based on an evaluation of a
company’s financial condition and collateral is generally not
required. The Company maintains an allowance for doubtful accounts
for estimated uncollectible accounts receivable. The allowance is
based on the Company’s assessment of known delinquent
accounts, historical experience, and other currently available
evidence of the collectability and the aging of accounts
receivable. The Company’s allowance for doubtful accounts was
$0.3 million and $0.1 million at December 31, 2015 and 2014,
respectively. The provision for doubtful accounts is included in
sales and marketing expense in the consolidated statements of
operations.
Inventories
Inventories are stated at the lower of cost or market and include
material, labor and overhead costs using the first-in, first-out
(“FIFO”) method of costing. Inventories as of
December 31, 2015 and 2014 were composed of raw materials,
sub-assemblies, finished goods and work-in-process. The Company had
consigned inventory of $0.7 million and $0.8 million at
December 31, 2015 and 2014, respectively. The Company records
allowances to reduce the value of inventory to the lower of cost or
market, including allowances for excess and obsolete
inventory. Reserves for excess inventory are calculated based
on our estimate of inventory in excess of normal and planned
usage. Obsolete reserves are based on our identification of
inventory where carrying value is above net realizable
value. The allowance for inventory losses was $2.2 million and
$1.8 million as of December 31, 2015 and 2014,
respectively.
Inventories consisted of the following:
December 31,
December 31,
2015 2014
Raw materials $ 11,012 $ 10,160
Work in process 917 915
Finished goods 5,667 5,283
Inventories, net $ 17,596 $ 16,358
Prepaid and other current assets
Prepaid assets are stated at cost and are amortized over the useful
lives (up to one year) of the assets.
Property and Equipment
Property and equipment are stated at cost and are depreciated using
the straight-line method over the estimated useful lives of the
assets. The Company depreciates computers over three to five
years, office equipment, manufacturing and test equipment and motor
vehicles over five years, furniture and fixtures over seven years,
and buildings over 30 years. Leasehold improvements are
amortized over the shorter of the corresponding lease term or
useful life. Depreciation expense and gains and losses on the
disposal of property and equipment are included in cost of sales
and operating expenses in the consolidated statements of
operations. Maintenance and repairs are expensed as
incurred.
Property and equipment consisted of the following:
December 31,
December 31,
2015 2014
Building $ 6,227 $ 6,229
Computers and office equipment 10,931 10,435
Manufacturing and test equipment 12,826 11,880
Furniture and fixtures 1,273 1,214
Leasehold improvements 1,001 909
Motor vehicles 42 117
Total property and equipment 32,300 30,784
Less: Accumulated depreciation and amortization (20,231 ) (17,712 )
Land 1,770 1,770
Property and equipment, net $ 13,839 $ 14,842
Depreciation and amortization expense was approximately $3.1
million, $2.8 million, and $2.7 million for the years ended
December 31, 2015, 2014, and 2013,
respectively. Amortization for capital leases is included in
depreciation and amortization expense. See Note 8 for
information related to capital leases.
Liabilities
Accrued liabilities consisted of the following:
December 31,
December 31,
2015 2014
Inventory receipts $ 1,628 $ 2,471
Paid time off 1,271 1,247
Payroll, bonuses, and other employee benefits 1,179 1,539
Warranties 348 304
Income and sales taxes 381 266
Professional fees and contractors 305 223
Employee stock purchase plan 280 314
Restructuring 237 0
Real estate taxes 161 181
Deferred revenues 65 1,262
Executive deferred compensation 0 2,043
Other 335 361
Total $ 6,190 $ 10,211
Long-term liabilities consisted of the following:
December 31,
December 31,
2015 2014
Deferred rent $ 250 $ 258
Long-term obligations under capital leases 107 135
Deferred revenues 31 55
$ 388 $ 448
Revenue Recognition
The Company sells antennas, site solutions, and scanning receiver
products, and provides network engineering and staffing
services. The Company recognizes revenue when the following
criteria are met: persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, price is
fixed and determinable, and collectability is reasonably
assured.
The Company recognizes revenue for sales of its products when title
transfers, which is predominantly upon shipment from its
factory. For products shipped on consignment, the Company
recognizes revenue upon delivery from the consignment
location. The Company allows its major antenna product
distributors to return product under specified terms and conditions
and accrues for product returns. The Company recognizes
revenue for its engineering services under the completed
performance method. Most services occur in one week or less,
and revenue is generally recognized when engineering reports are
completed and issued to the customer. For specialized
staffing, the Company recognizes revenue as services are provided
to the customer.
Research and Development Costs
The Company expenses research and development costs as
incurred. To date, the Company has expensed all software
development costs related to research and development because the
costs incurred subsequent to the products reaching technological
feasibility were not significant.
Advertising Costs
Advertising costs are expensed in the period in which they are
incurred. Advertising expense was $212, $175, and $166 in each
of the fiscal years ended December 31, 2015, 2014, and 2013,
respectively.
Income Taxes
Income taxes are accounted for 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. Deferred tax assets and liabilities
are measured 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. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment
date. Valuation allowances are provided against deferred tax
assets, which are not likely to be realized. On a regular
basis, management evaluates the recoverability of deferred tax
assets and the need for a valuation allowance.
Deferred tax assets arise when the Company recognizes charges or
expenses in the financial statements that will not be allowed as
income tax deductions until future periods. The deferred tax
assets also include unused tax net operating losses and tax credits
that the Company is allowed to carry forward to future
years. Accounting rules permit the Company to carry the
deferred tax assets on the balance sheet at full value as long as
it is more likely than not the deductions, losses, or credits will
be used in the future. A valuation allowance must be recorded
against a deferred tax asset if this test cannot be met.
The Company recognizes the effect of income tax positions only if
those positions are more likely than not of being sustained.
Recognized income tax positions are measured at the largest amount
that is greater than 50% likely of being realized. Changes in
recognition or measurement are reflected in the period in which the
change in judgment occurs.
Sales and Value Added Taxes
Taxes collected from customers and remitted to governmental
authorities are presented on a net basis in cost of sales in the
accompanying consolidated statements of operations.
Shipping and handling costs
Shipping and handling costs are included on a gross basis in cost
of sales in the accompanying consolidated statements of
operations.
Goodwill
The Company performs an annual impairment test of goodwill as of
the end of the first month of the fiscal fourth quarter
(October 31st), or at an interim date if an event occurs or if
circumstances change that would indicate that an impairment loss
may have been incurred. In performing the annual impairment test,
the Company first performs 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, including
goodwill. If the qualitative assessment is indicative of
possible impairment, then a two-step quantitative fair value
assessment is performed at the reporting unit level. In the first
step, the fair value of each reporting unit is compared with its
carrying value. If the fair value exceeds the carrying value,
then goodwill is not impaired and no further testing is
performed. The second step is performed if the carrying value
exceeds the fair value. The implied fair value of goodwill is
then compared against the carrying value of goodwill to determine
the amount of impairment.
The process of evaluating the potential impairment of goodwill is
subjective because it requires the use of estimates and assumptions
in determining a reporting unit’s fair value. The Company
calculates the fair value of each reporting unit by using
the income approach based on the present value of
future discounted cash flows. The discounted cash flow method
requires the Company to use estimates and judgments about the
future cash flows of the reporting units. Although the Company
bases cash flow forecasts on assumptions that are consistent with
plans and estimates the Company uses to manage the underlying
reporting units, there is significant judgment in determining the
cash flows attributable to these reporting units, including markets
and market share, sales volumes and mix, research and development
expenses, tax rates, capital spending, discount rate and working
capital changes. Cash flow forecasts are based on reporting unit
operating plans for the early years and business projections in
later years. The Company believes the accounting estimate related
to the valuation of goodwill is a critical accounting estimate
because it requires us to make assumptions that are highly
uncertain about the future cash flows of the reporting units.
Changes in these estimates can have a material impact on the
Company’s financial statements.
While the use of historical results and future projections can
result in different valuations for a business, it is a generally
accepted valuation practice to apply more than one valuation
technique to establish a range of values for a business. Since each
technique relies on different inputs and assumptions, it is
unlikely that each technique would yield the same results. However,
it is expected that the different techniques would establish a
reasonable range. In determining the fair value, the Company
weighs the two methods equally because it believes both methods
have an equal probability of providing an appropriate fair
value.
The Company recorded $0.2 million of goodwill related to the
business acquired from Envision Wireless, Inc. in 2011 and recorded
goodwill of $3.3 million of related to the business acquired from
Nexgen Wireless, Inc. in February 2015. There are two
reporting units for goodwill testing purposes within the RF
Solutions segment, Products and Services. The $3.3 million of
goodwill from the Nexgen acquisition was recorded in Products and
the $0.2 million of goodwill from the Envision acquisition was
recorded in Services.
The RF Solutions segment had experienced declining profitability
for the three quarters ended September 30, 2015 (See Note 12
for the segment information). The Company considered the decline to
be an interim change in circumstances that would indicate that an
impairment loss may have been incurred at September 30, 2015.
The Company performed a qualitative assessment on both reporting
units at September 30, 2015 and determined it was more likely
than not that the fair value of each reporting unit was greater
than its carrying value, including goodwill. The primary positive
evidence considered was a restructuring of costs that is expected
to lower the cost structure by several million dollars annually. In
addition the Company performed a Step 1 quantitative goodwill test
at September 30, 2015 at the lower forecasted cost structure,
which confirmed the qualitative assessment.
The Company performed its annual goodwill test on both the RF
Solutions Products and Services reporting units at October 31,
2015. At that date the carrying value of the Company’s assets
was $102.5 million as compared to a $100.0 million market
capitalization and a $9.3 million control premium determined by the
Company as the net present value of its public company costs that
would become cost savings synergies to an acquirer. During the
fourth quarter the Products reporting unit was operating
consistently with the projections made at September 30, 2015.
The Services reporting unit was operating at a lower level than the
projections at September 30, 2015. The Company performed a
qualitative assessment and concluded it is more likely than not
that the fair value of the Products reporting unit is more than its
carrying value, including goodwill, and the Services reporting unit
is less likely than not. In addition the Company performed a Step 1
quantitative goodwill test for both reporting units at
October 31, 2015 which confirmed the qualitative assessments.
The Company performed a Step 2 quantitative goodwill test at
October 31, 2015 on the Services reporting unit and concluded
that all $0.2 million of the goodwill was impaired.
The Company’s carrying value at December 31, 2015 was
$100.5 million as compared to a market capitalization of $80.3
million and a control premium of $9.3 million. The market cap
deficit has existed since mid-November 2015. A stock
performance comparison was performed with twelve of the peer
companies we use for compensation comparable data that are still
publicly traded at December 31, 2015. The company list can be
found in the Company’s Proxy Statement dated April 30,
2015. When comparing the period October 31, 2015 to
December 31, 2015 eight of the companies experienced stock
price declines, two of which were comparable to PCTEL’s
decline. Trading volume for all the companies including PCTEL
during that period was consistent with historical levels.
Management concluded that the market was distressed but liquid. The
Company considered the decline in market capitalization and
resulting deficit to carrying value to be an indication that an
impairment loss may have occurred at December 31, 2015. The
Company performed another Step 1 quantitative goodwill test at
December 31, 2015. The higher discount rates used for the
reporting units reconciled the total fair value of the Company to
its December 31, 2015 market capitalization. The test
indicated the remaining goodwill was not impaired.
For the annual goodwill test as of October 31, 2014, the
Company performed a qualitative analysis of goodwill and concluded
that there was no triggering event that would necessitate a
two-step goodwill impairment test.
Long-lived and Definite-Lived Intangible assets
The Company reviews definite-lived intangible assets, investments
and other long-lived assets for impairment when events or changes
in circumstances indicate that their carrying values may not be
fully recoverable. This analysis differs from the Company’s
goodwill analysis in that definite-lived intangible asset
impairment is only deemed to have occurred if the sum of the
forecasted undiscounted future cash flows related to the assets
being evaluated is less than the carrying value of the assets. The
estimate of long-term undiscounted cash flows includes long-term
forecasts of revenue growth, gross margins, and operating expenses.
All of these items require significant judgment and assumptions. An
impairment loss may exist when the estimated undiscounted cash
flows attributable to the assets are less than the carrying
amount.
As discussed in the goodwill section above, the Company recorded
the impairment of all $0.2 million of the goodwill carried by the
RF Services reporting unit at the annual impairment test date.
Additionally at December 31, 2015 the Services reporting unit
forecast had deteriorated from that used in the October 31,
2015 goodwill impairment analysis. Management concluded that these
were triggering events indicating that a potential impairment of
long lived intangible assets in that reporting unit may have
occurred. The Company performed a long lived asset impairment test
by comparing the undiscounted future cash flows for the reporting
unit to the reporting unit’s asset carrying value. The
customer relationships were determined to be the primary asset of
the asset group. Since this asset was not separable from the other
assets in the reporting group, the asset group consisted of all of
the assets in the reporting group. No impairment was indicated.
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) No. 2016-02, “Leases (Topic 842),”
which requires lessees to recognize assets and liabilities for the
rights and obligations created by most leases on their balance
sheet. The guidance is effective for fiscal years beginning after
December 15, 2018, including interim periods within those
fiscal years. Early application is permitted. ASU 2016-02 requires
modified retrospective adoption for all leases existing at, or
entered into after, the date of initial application, with an option
to use certain transition relief. The Company is currently
evaluating the impact the standard may have on its consolidated
financial statements and related disclosures.
In November 2015, the FASB issued ASU 2015-17, Balance Sheet
Classification of Deferred Taxes, to simplify the presentation of
deferred income taxes. The amendments in this update require that
deferred tax assets and liabilities be entirely classified as
noncurrent within the statement of financial position. Effective
December 31, 2015, the Company early adopted the balance sheet
classification of deferred taxes on a prospective basis. The
guidance requires deferred tax assets and liabilities to be
classified as noncurrent rather than split between current and
noncurrent. Approximately $1.8 million in current deferred tax
assets were reclassified to long-term deferred tax assets at
December 31, 2015. See Note 7 for additional details
related to income taxes.
In July 2015, the FASB issued ASU 2015-11, “Simplifying
the Measurement of Inventory (Topic 330).” The new guidance
requires most inventory to be measured at the lower of cost and net
realizable value, thereby simplifying the previous guidance under
which an entity must measure inventory at the lower of cost or
market. Market is defined as replacement cost, net realizable value
(“NRV”), or NRV less a normal profit margin. The ASU
will not apply to inventory that is measured using either the
last-in, first-out method or the retail inventory method. The
standard will be effective prospectively for the first interim
period within annual reporting periods beginning after
December 15, 2016. Early adoption is permitted. The Company is
currently assessing the provisions of the guidance and has not
determined the impact of the adoption of this guidance on its
consolidated financial statements.
In June 2014, the FASB issued ASU No. 2014-12, Accounting for
Share-Based Payments When the Terms of an Award Provide That a
Performance Target Could Be Achieved after the Requisite Service
Period. ASU 2014-12 was issued to clarify that a performance target
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