Basis of Presentation (Policies) | 9 Months Ended |
Sep. 30, 2013 |
Accounting Policies [Abstract] | ' |
Nature of the Business | ' |
Nature of the Business |
|
The accompanying condensed consolidated financial statements include the accounts of Lionbridge Technologies, Inc. and its wholly owned subsidiaries (collectively, “Lionbridge” or the “Company”). These financial statements are unaudited. However, in the opinion of management, the condensed consolidated financial statements include all adjustments, all of a normal recurring nature, necessary for their fair presentation. Interim results are not necessarily indicative of results expected for a full year. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and footnotes necessary for a complete presentation of the operations, financial position and cash flows of the Company in conformity with U.S. generally accepted accounting principles (“GAAP”). The condensed consolidated balance sheet data as of December 31, 2012 was derived from audited financial statements, but does not include all disclosures required by GAAP for annual financial statements. These statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. |
|
The Company’s preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. Estimates are used (but not limited to) when accounting for collectability of receivables, calculating service revenue using a proportional performance assessment and valuing intangible assets and deferred tax assets. Actual results could differ from these estimates. |
|
Out of Period Adjustment | ' |
Out of Period Adjustments |
During the nine months ended September 30, 2013, the Company identified certain out of period immaterial errors related to the calculation of revenue-related discounts, the calculation of the foreign exchange impact of a certain intercompany balance, time and materials revenue calculations for a certain project, and previously unrecorded asset retirement obligations for certain office leases. |
The Company corrected the identified error relating to the calculation of revenue-related discounts during the three-month interim period ended December 31, 2012 during the first quarter of 2013, which had the effect of reducing revenue and net income by $0.2 million during the three-month interim period ended March 31, 2013. |
The Company corrected the identified error relating to the calculation of foreign exchange impact of a certain intercompany balance during the three-month interim period ended June 30, 2013, which had the effect of overstating other expense, net in the condensed consolidated statements of operations by $0.1 million for the three-month interim period ended June 30, 2013. |
The Company corrected the identified error relating to the calculation of time and materials revenue during the three-month interim period ended September 30, 2013, which had the effect of reducing revenue and net income by $0.2 million during the three-month interim period ended September 30, 2013. |
The Company corrected the identified error relating to previously unrecorded asset retirement obligations during the three-month interim period ended September 30, 2013, which had the effect of increasing accrued expenses and other current liabilities, increasing general and administrative expenses and decreasing net income by $0.4 million during the three-month interim period ended September 30, 2013. Had the asset retirement obligations been booked in the proper periods, the Company would have booked $0.3 million during the three-month interim period ended September 30, 2007 and $0.1 million during the three-month interim period ended June 30, 2010. |
|
The Company has evaluated these errors and does not believe the amounts are material to any of the periods impacted. The table below summarizes the net impact of the aforementioned adjustments on the condensed and consolidated statement of operations, had they been recorded in the proper period (in thousands): |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Nine Months Ended | | | | | | | | | |
September 30, | September 30, | | | | | | | | |
| | 2013 | | | 2012 | | | 2013 | | | 2012 | | | | | | | | | |
| | | | | | | | | | | | |
Revenue | | $ | 217 | | | $ | (16 | ) | | $ | 239 | | | $ | (43 | ) | | | | | | | | |
General and administrative expenses | | $ | (365 | ) | | $ | — | | | $ | (365 | ) | | $ | — | | | | | | | | | |
Other expense, net | | $ | — | | | $ | 101 | | | $ | (166 | ) | | $ | 91 | | | | | | | | | |
Net income | | $ | 582 | | | $ | (117 | ) | | $ | 770 | | | $ | (134 | ) | | | | | | | | |
Stock-Based Compensation | ' |
Stock-based Compensation |
The Company recognizes expense for stock options, performance-based restricted stock awards and time-based restricted stock awards pursuant to the authoritative guidance of Accounting Standards Codification (“ASC”) 718, “Compensation—Stock Compensation”. Total compensation expense related to stock options, performance-based restricted stock awards and time-based restricted stock awards was $1.7 million and $1.5 million for the three month periods ended September 30, 2013 and 2012, respectively, and $5.0 million and $4.3 million for the nine month periods ended September 30, 2013 and 2012, respectively, classified in the condensed consolidated statements of operations line items as follows (in thousands): |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Nine Months Ended | | | | | | | | | |
September 30, | September 30, | | | | | | | | |
| | 2013 | | | 2012 | | | 2013 | | | 2012 | | | | | | | | | |
Cost of revenue | | $ | 23 | | | $ | 22 | | | $ | 69 | | | $ | 88 | | | | | | | | | |
Sales and marketing | | | 316 | | | | 297 | | | | 936 | | | | 847 | | | | | | | | | |
General and administrative | | | 1,299 | | | | 1,208 | | | | 3,919 | | | | 3,365 | | | | | | | | | |
Research and development | | | 13 | | | | 13 | | | | 37 | | | | 39 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total stock-based compensation expense | | $ | 1,651 | | | $ | 1,540 | | | $ | 4,961 | | | $ | 4,339 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
As of September 30, 2013, future compensation cost related to non-vested stock options, less estimated forfeitures, is approximately $1.1 million and will be recognized over an estimated weighted “average” period of approximately 2.3 years. Lionbridge currently expects to amortize $8.8 million of unamortized compensation in connection with restricted stock awards outstanding as of September 30, 2013 over an estimated weighted “average” period of approximately 2.3 years. |
Goodwill, Acquisition-Related Intangible Assets, and Other Long Lived Assets | ' |
Lionbridge assesses the impairment of goodwill and acquisition-related intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Such events or conditions could include an economic downturn in the industries to which Lionbridge provides services; increased competition; an increase in operating or other costs; additional volatility in international currencies; the pace of technological improvements; or other information regarding Lionbridge’s market value, such as a reduction in stock price to a price near or below the book value of the Company for an extended period of time. When Lionbridge determines that the carrying value of goodwill may not be recoverable based upon one or more of these indicators of impairment, the Company initially assesses any impairment using fair value measurements based on projected discounted cash flow valuation models. In addition, in accordance with ASC 350, “Intangibles—Goodwill and Other” (“ASC 350”), goodwill is reviewed for impairment on an annual basis. At December 31, 2012, the Company performed its annual test of goodwill to determine if an impairment existed. This test determined that each reporting unit’s fair value exceeded the carrying value of the net assets of each respective reporting unit, using projected discounted cash flow modeling. As a result, no impairment was recorded for the year ended December 31, 2012. There were no events or changes in circumstances during the nine months ended September 30, 2013 which indicated that an assessment of the impairment of goodwill and acquisition-related intangible assets was required. |
The Company evaluates whether there has been an impairment in the carrying value of its long-lived assets in accordance with ASC 360, “Property, Plant and Equipment” (“ASC 360”), if circumstances indicate that a possible impairment may exist. An impairment in the carrying value of an asset is assessed when the undiscounted expected future operating cash flows derived from the asset grouping are less than its carrying value. If it is determined that the asset group is impaired then it is written down to its estimated fair value. Factors that could lead to an impairment of its long-lived assets include a worsening in customer attrition rates compared to historical attrition rates, lower than initially anticipated cash flows associated with customer relationships, significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of the acquired assets or the strategy for our overall business, identification of other impaired assets within a reporting unit, disposition of a significant portion of an operating segment, significant negative industry or economic trends, significant decline in our stock price for a sustained period and a decline in our market capitalization relative to net book value. |
During the three months ended June 30, 2012, Lionbridge determined that two events triggered an evaluation of long-lived assets under ASC 360 resulting in an aggregate impairment charge of $4.1 million. The first event involved certain software license and capitalized development costs in the amount of $3.9 million associated with the expected cash flows from the Company’s RTTS License following the Company’s decision to integrate the Microsoft Translator machine translation engine in its GeoFluent cloud-based real-time translation offering in place of the machine translation technology obtained through the RTTS License for certain language models. As the Company determined that the undiscounted cash flows associated with the RTTS License were lower than the carrying value, the RTTS License was written down to its estimated fair value of zero and a $3.9 million impairment charge was recorded. The second event related to the decision during the three months ended June 30, 2012 to offer for sale certain real property of the Company located in Wuppertal, Germany. The real property was recorded at fair value less selling costs, resulting in a $0.2 million impairment charge. |
Intangible assets arose from the acquisition of Bowne Global Solutions (“BGS”) in September 2005, Productive Resources, LLC (“PRI”) in June 2012 and Virtual Solutions, Inc. (“VSI”) in November 2012. BGS customer relationships are being amortized using an economic consumption method over an estimated useful life of 3 to 12 years. PRI customer relationships and non-compete agreement are being amortized using a straight-line method over an estimated useful life of 12 years and 5 years, respectively. VSI acquired developed technology, acquired core technology, customer relationships, non-compete agreements and acquired trademark are being amortized using a straight-line method over an estimated useful life of 5 years, 10 years, 2 years, 4 years and 2 years, respectively. |
|
The following table summarizes acquisition-related intangible assets at September 30, 2013 and December 31, 2012, respectively (in thousands). |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2013 | | | December 31, 2012 | |
| | Gross | | | Accumulated | | | Balance | | | Gross | | | Accumulated | | | Balance | |
Carrying | Amortization | Carrying | Amortization |
Value | | Value | |
Acquired customer relationships | | $ | 39,090 | | | $ | (28,914 | ) | | $ | 10,176 | | | $ | 39,090 | | | $ | (27,005 | ) | | $ | 12,085 | |
Acquired customer contracts | | | 14,000 | | | | (14,000 | ) | | | — | | | | 14,000 | | | | (14,000 | ) | | | — | |
Acquired technology | | | 5,117 | | | | (2,692 | ) | | | 2,425 | | | | 5,117 | | | | (2,354 | ) | | | 2,763 | |
Non-compete agreements | | | 1,450 | | | | (378 | ) | | | 1,072 | | | | 1,450 | | | | (155 | ) | | | 1,295 | |
Acquired trademark | | | 40 | | | | (17 | ) | | | 23 | | | | 40 | | | | (2 | ) | | | 38 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 59,697 | | | $ | (46,001 | ) | | $ | 13,696 | | | $ | 59,697 | | | $ | (43,516 | ) | | $ | 16,181 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Fair Value Measurements | ' |
ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. ASC 820 defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required by the standard that Lionbridge uses to measure fair value, as well as the assets and liabilities that the Company values using those levels of inputs. |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Level 1: | | Quoted prices in active markets for identical assets or liabilities. Lionbridge made available for sale certain real property in Germany and following guidance in ASC 360, the asset was recorded at its fair value, less selling cost. As of December 31, 2012, the real property was recorded at fair value of $0.7 million. The fair value was determined through its actual sales price, which was paid by the customer in December 2012 but title did not pass until January 1, 2013. The Company did not have any financial assets and liabilities at September 30, 2013 designated as Level 1. | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | Level 2: | | Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices 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 the related assets or liabilities. Lionbridge’s Level 2 assets and liabilities have historically been an interest rate swap and foreign exchange forward contracts whose fair value were determined using pricing models predicated upon observable market spot and forward rates. Changes in the fair value of foreign exchange forward contracts are recorded in the Company’s earnings as other (income) expense. The Company did not have any foreign exchange forward contracts outstanding at either September 30, 2013 or December 31, 2012. Lionbridge does not have any financial assets and liabilities as of September 30, 2013 or December 31, 2012 designated as Level 2. | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | 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. Lionbridge has contingent consideration assumed as a result of the VSI acquisition. As of September 30, 2013 and December 31, 2012, the contingent consideration of $1.8 million and $1.5 million, respectively, was designated as Level 3. The Company’s contingent purchase consideration is valued by probability weighting expected payment scenarios and then applying a discount, based on the present value of the future cash flow streams. This liability is classified as Level 3 because the probability weighting of future payment scenarios is based on assumptions developed by management. The Company determined a probability weighting that is weighted towards VSI achieving the revenue target at the time of acquisition and the discount rate of 17% is based on the company’s weighted average cost of capital which is then adjusted for the time value of money. The probability weighting has been adjusted during the nine months ended September 30, 2013 as the actual results provide the Company with more reliable information to weight the probability scenarios. This adjustment resulted in a $0.3 million increase to the contingent consideration during the nine months ended September 30th, 2013. The actual results have been consistent with the original assumptions. The discount rate and factor have remained consistent during the nine months ended September 30, 2013. The Company believes that any probable changes during future periods to these assumptions will not have a material effect on the contingent considerations. | | | | | | | | | | | | | | | | | | | | |
Recent Accounting Pronouncements | ' |
New pronouncements issued but not effective until after September 30, 2013 are not expected to have a material impact on our financial position, results of operations or liquidity. |