Summary of significant accounting policies | 12 Months Ended |
Mar. 31, 2014 |
Accounting Policies [Abstract] | ' |
Summary of significant accounting policies | ' |
Summary of significant accounting policies |
Basis of presentation and consolidation |
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and a consolidated variable interest entity. The Company uses the equity method to account for equity investments in instances in which it owns common stock or securities deemed to be in-substance common stock and has the ability to exercise significant influence, but not control, over the investee and for all investments in partnerships or limited liability companies where the investee maintains separate capital accounts for each investor. Investments in which the Company holds securities that are not in-substance common stock, or holds common stock or in-substance common stock, but has little or no influence are accounted for using the cost method. All significant intercompany transactions and balances have been eliminated. |
On June 18, 2012, the Company completed a two-for-one split of its outstanding shares of common stock in the form of a stock dividend. Each stockholder of record received one additional share of common stock for each share of common stock owned at the close of business on May 31, 2012. Share numbers and per share amounts presented in the accompanying consolidated financial statements and these notes thereto for dates before June 18, 2012 have been restated to reflect the impact of the stock split. |
Correction of prior period financial statements |
Software cost capitalization errors |
During the fiscal year ended March 31, 2014, the Company identified errors related to prior periods. These errors were attributable to the omission of certain payroll-related benefits from the Company's capitalization of software development costs. The impact of the errors in the prior periods was not material to the Company in any of those periods; however, an adjustment to correct the aggregate amount of the prior period errors would have been material to the Company’s current year statement of income. The Company has applied the guidance for accounting changes and error correction and has corrected these errors for all prior periods presented by revising the consolidated financial statements and other financial information included herein. The Company has also corrected an error related to the timing of a prior period acquisition-related earn-out fair value adjustment. The understatement of the liability of $1.0 million as of March 31, 2012 was corrected during the fiscal year ended March 31, 2013. In connection with the revision for the software cost capitalization error, the Company has revised the affected financial statements to correct the error in the proper period. Periods not presented herein will be revised, as applicable, as they are included in future filings. |
The following are the previously stated and corrected balances of the affected line items of the consolidated statements of operations, consolidated cash flows, and consolidated balance sheets presented in this Form 10-K for the periods or as of the date presented (in thousands): |
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| Year Ended March 31, 2013 |
| As reported | | Adjustments | | As adjusted |
Cost of services, excluding depreciation and amortization | $ | 240,037 | | | $ | (2,432 | ) | | 237,605 | |
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Depreciation and amortization | 19,885 | | | 423 | | | 20,308 | |
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Operating income, net | 43,466 | | | 2,009 | | | 45,475 | |
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Income from continuing operations before provision for income taxes and equity in loss of unconsolidated entities | 46,070 | | | 2,009 | | | 48,079 | |
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Provision for income taxes | (17,259 | ) | | (764 | ) | | (18,023 | ) |
Net income before allocation to noncontrolling interest | 22,055 | | | 1,245 | | | 23,300 | |
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Net income attributable to common stockholders | 22,163 | | | 1,245 | | | 23,408 | |
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Earnings per share: | | | | | | |
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Net income attributable to common stockholders per share - basic | $ | 0.64 | | | 0.03 | | | $ | 0.67 | |
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Net income attributable to common stockholders per share - diluted | $ | 0.61 | | | 0.03 | | | $ | 0.64 | |
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Comprehensive income | 22,218 | | | 1,245 | | | 23,463 | |
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Statement of cash flows: | | | | | | |
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Net income before allocation to noncontrolling interest | 22,055 | | | 1,245 | | | 23,300 | |
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Depreciation and amortization | 19,885 | | | 423 | | | 20,308 | |
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Deferred income taxes | 261 | | | 380 | | | 641 | |
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Other long-term liabilities | (7,499 | ) | | — | | | (7,499 | ) |
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Net cash provided by operating activities | 81,827 | | | 1,434 | | | 83,261 | |
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Purchases of property and equipment | (35,545 | ) | | (1,434 | ) | | (36,979 | ) |
Net cash used in investing activities | (105,467 | ) | | (1,434 | ) | | (106,901 | ) |
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| Year Ended March 31, 2012 |
| As reported | | Adjustments | | As adjusted |
Cost of services, excluding depreciation and amortization | $ | 198,112 | | | $ | (175 | ) | | $ | 197,937 | |
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Depreciation and amortization | 14,108 | | | 161 | | | 14,269 | |
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Operating income, net | 36,358 | | | 14 | | | 36,372 | |
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Income from continuing operations before provision for income taxes and equity in loss of unconsolidated entities | 39,392 | | | 14 | | | 39,406 | |
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Provision for income taxes | (15,203 | ) | | (4 | ) | | (15,207 | ) |
Net income before allocation to noncontrolling interest | 25,293 | | | 10 | | | 25,303 | |
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Net income attributable to common stockholders | 25,293 | | | 10 | | | 25,303 | |
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Earnings per share: | | | | | |
Net income attributable to common stockholders per share - basic | $ | 0.77 | | | $ | — | | | $ | 0.77 | |
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Net income attributable to common stockholders per share - diluted | $ | 0.73 | | | $ | — | | | $ | 0.73 | |
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Comprehensive income | 26,619 | | | 10 | | | 26,629 | |
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Statement of cash flows: | | | | | |
Net income before allocation to noncontrolling interest | $ | 25,293 | | | $ | 10 | | | $ | 25,303 | |
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Depreciation and amortization | 14,656 | | | 161 | | | 14,817 | |
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Deferred income taxes | (85 | ) | | 389 | | | 304 | |
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Other long-term liabilities | 5,950 | | | 1,000 | | | 6,950 | |
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Net cash provided by operating activities | 92,732 | | | 1,175 | | | 93,907 | |
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Purchases of property and equipment | (29,194 | ) | | (1,175 | ) | | (30,369 | ) |
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Net cash used in investing activities | (87,555 | ) | | (1,175 | ) | | (88,730 | ) |
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| As of March 31, 2013 |
| As reported | | Adjustments | | As adjusted |
Property and equipment, net | $ | 71,174 | | | $ | 2,398 | | | $ | 73,572 | |
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Deferred income taxes, net of current portion | 3,888 | | | (895 | ) | | 2,993 | |
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Total assets | 896,430 | | | 1,503 | | | 897,933 | |
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Accumulated deficit | (95,809 | ) | | 1,503 | | | (94,306 | ) |
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Total stockholders’ equity | 281,317 | | | 1,503 | | | 282,820 | |
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Total liabilities and stockholders’ equity | 896,430 | | | 1,503 | | | 897,933 | |
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Membership fees receivable and deferred revenue errors |
During the fiscal year ended March 31, 2014, the Company identified immaterial errors in previously reported amounts of membership fees receivable and deferred revenue. The consolidated balance sheet at March 31, 2013 was adjusted to correct these errors resulting in an increase in membership fees receivable of $18.7 million, an increase in current deferred revenue of $11.8 million, and an increase in deferred revenue, net of current of $6.9 million. The amounts presented above "as reported" as of March 31, 2013 reflect these previous error corrections. |
Similar errors affecting membership fees receivable and deferred revenue were identified and corrected in the consolidated statement of cash flows for the fiscal years ended March 31, 2013 and 2012. For the fiscal year ended March 31, 2012, the operating cash outflow related to membership fees receivable as reported of $104.2 million was decreased by $0.5 million and the operating cash inflow related to deferred revenue as reported of $132.3 million was decreased by the same amount. For the fiscal year ended March 31, 2013, the operating cash outflow related to membership fees receivable as reported of $68.4 million was increased by $19.3 million and the operating cash inflow related to deferred revenue as reported of $90.8 million was increased by the same amount. These error corrections are not included in the error corrections summarized above. |
These corrections have no effect on the previously reported consolidated statements of income or stockholders’ equity for any period. The errors affected only balances within changes in working capital reported in cash flows from operating activities. Total cash flows from operating activities were unaffected by the corrections. |
Use of estimates in preparation of consolidated financial statements |
The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These accounting principles require the Company to make certain estimates, judgments, and assumptions. For cases where the Company is required to make certain estimates, judgments, and assumptions, the Company believes that the estimates, judgments, and assumptions upon which it relies are reasonable based upon information available to the Company at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenue and expenses during the periods presented. To the extent there are material differences between these estimates, judgments, or assumptions and actual results, the Company’s financial statements will be affected. The Company’s estimates, judgments, and assumptions may include: estimates of bad debt reserves; estimates to establish employee bonus and commission accruals; estimates of the fair value of contingent earn-out liabilities; estimates of the useful lives of acquired or internally developed intangible assets; estimates of the fair value of goodwill and intangibles and evaluation of impairment; determination of when investment impairments are other-than-temporary; estimates of the recoverability of deferred tax assets; and estimates of the potential for future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. |
Cash equivalents and marketable securities |
Included in cash equivalents are marketable securities with original maturities of three months or less at purchase. Investments with original maturities of more than three months are classified as marketable securities. Current marketable securities have maturity dates within twelve months of the balance sheet date. As of March 31, 2013 and 2014, the Company’s marketable securities consisted of U.S. government-sponsored enterprise obligations and various state tax-exempt notes and bonds. The Company’s marketable securities, which are classified as available-for-sale, are carried at fair market value based on quoted market prices. The net unrealized gains and losses on available-for-sale marketable securities are excluded from net income attributable to common stockholders and are included within accumulated other comprehensive income, net of tax. The specific identification method is used to compute the realized gains and losses on the sale of marketable securities. |
Allowance for uncollectible revenue |
The Company’s ability to collect outstanding receivables from its members has an effect on the Company’s operating performance and cash flows. The Company records an allowance for uncollectible revenue as a reduction of revenue based on its ongoing monitoring of members’ credit and the aging of receivables. To determine the allowance for uncollectible revenue, the Company examines its collections history, the age of accounts receivable in question, any specific member collection issues that have been identified, general market conditions, and current economic trends. Membership fees receivable balances are not collateralized. |
Property and equipment |
Property and equipment consists of leasehold improvements, furniture, fixtures, equipment, capitalized internal use software development costs, and acquired developed technology. Property and equipment is stated at cost, less accumulated depreciation and amortization. In certain membership programs, the Company provides software applications under a hosting arrangement where the software application resides on the Company’s or its service providers’ hardware. The members do not take delivery of the software and only receive access to the software during the term of their membership agreement. |
Computer software development costs that are incurred in the preliminary project stage for internal use software are expensed as incurred. During the development stage, direct consulting costs and payroll and payroll-related costs for employees that are directly associated with each project are capitalized and amortized over the estimated useful life of the software once it is placed into operation. Internally developed capitalized software is classified as software within property and equipment and is amortized using the straight-line method over its estimated useful life, which is generally five years. Replacements and major improvements are capitalized, while maintenance and repairs are charged to expense as incurred. Amortization expense for internally developed capitalized software for the fiscal years ended March 31, 2012, 2013, and 2014, recorded in depreciation and amortization on the consolidated statements of income, was approximately $3.8 million, $4.8 million, and $9.2 million, respectively. |
The acquired developed technology is classified as software within property and equipment because the developed software application resides on the Company’s or its service providers’ hardware. Amortization for acquired developed software is included in depreciation and amortization on the consolidated statements of income. Acquired developed software is amortized over a weighted average estimated useful life of six years based on the cash flow estimate used to determine the value of the intangible asset. The amount of acquired developed software amortization included in depreciation and amortization for the fiscal years ended March 31, 2012, 2013, and 2014 was approximately $0.9 million, $0.9 million, and $1.7 million, respectively. |
Furniture, fixtures, and equipment are depreciated using the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Leasehold improvements are depreciated using the straight-line method over the shorter of the estimated useful lives of the assets or the lease term. There are no capitalized leases included in property and equipment. The amount of depreciation expense recognized on plant, property and equipment during the fiscal years ended March 31, 2012, 2013, and 2014 was $5.2 million, $8.4 million, and $11.5 million, respectively. |
Business combinations |
The Company records acquisitions using the purchase method of accounting. All of the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration are recognized at their fair value on the acquisition date. All subsequent changes to a valuation allowance or uncertain tax position that relate to the acquired company and existed at the acquisition date that occur both within the measurement period and as a result of facts and circumstances that existed at the acquisition date are recognized as an adjustment to goodwill. All other changes in valuation allowance are recognized as a reduction or increase to expense or as a direct adjustment to additional paid-in capital as required. Any acquired in-process research and development is capitalized as an intangible asset and amortized over its estimated useful life. Acquisition-related costs are recorded as expenses in the consolidated financial statements. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date. |
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Goodwill and other intangible assets |
The excess cost of an acquisition over the fair value of the net assets acquired is recorded as goodwill. The primary factors that generate goodwill are the value of synergies between the acquired entities and the Company and the acquired assembled workforce, neither of which qualifies as an identifiable intangible asset. The Company’s goodwill and other intangible assets with indefinite lives are not amortized, but rather tested for impairment on an annual basis on March 31, or more frequently if events or changes in circumstances indicate potential impairment. The Company has concluded that its reporting units used to assess goodwill impairment are the same as its operating segments. |
When testing for impairment, the Company first performs a qualitative assessment on a reporting unit to determine whether further quantitative impairment testing is necessary. If an initial qualitative assessment identifies that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, additional quantitative testing is performed. If the quantitative testing indicates that goodwill is impaired, the carrying value of goodwill is written down to fair value. If the quantitative testing is performed, the Company would determine the fair value of its reporting units based on the income approach. Under the income approach, the fair value of a reporting unit is calculated based on the present value of estimated future cash flows. Based on the Company’s qualitative assessment as of March 31, 2014, management believed that no reporting unit was at risk of failing an impairment test that would result in an impairment charge. No quantitative testing was deemed necessary. |
Other intangible assets consist of capitalized software for sale and acquired intangibles. The Company capitalizes consulting costs and payroll and payroll-related costs for employees directly related to building a software product for sale once technological feasibility is established. The Company determines that technological feasibility is established by the completion of a detailed program design or, in its absence, completion of a working model. Once the software product is ready for general availability, the Company ceases capitalizing costs and begins amortizing the intangible asset on a straight-line basis over its estimated useful life. The weighted average estimated useful life of capitalized software is five years. Other intangible assets include those assets that arise from business combinations and that consist of developed technology, non-competition covenants, trademarks, contracts, and customer relationships that are amortized, on a straight-line basis, over six months to twelve years. Finite-lived intangible assets are required to be amortized over their useful lives and are evaluated for possible impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. |
Recovery of long-lived assets (excluding goodwill) |
The Company records long-lived assets, such as property and equipment, at cost. The carrying value of long-lived assets is reviewed for possible impairment whenever events or changes in circumstances suggest the carrying value of a long-lived asset may not be fully recoverable. The test for recoverability is made using an estimate of the undiscounted expected future cash flows and, if required, the impairment loss is measured as the amount that the carrying value of the asset exceeds the asset’s fair value if the asset is not recoverable. The Company considers expected cash flows and estimated future operating results, trends, and other available information in assessing whether the carrying value of assets is impaired. If it is determined that an asset’s carrying value is impaired, a write-down of the carrying value of the identified asset will be recorded as an operating expense on the consolidated statements of income in the period in which the determination is made. |
Fair value of financial instruments |
The Company’s short-term financial instruments consist of cash and cash equivalents, membership fees receivable, accrued expenses, and accounts payable. The carrying value of the Company’s financial instruments as of March 31, 2013 and 2014 approximates their fair value due to their short-term nature. The Company’s marketable securities consisting of U.S. government-sponsored enterprise obligations and various state tax-exempt notes and bonds are classified as available-for-sale and are carried at fair market value based on quoted market prices. The Company’s financial instruments also include cost method investments in private entities. These investments are in preferred securities that are not marketable; therefore management has concluded that it is not practicable to estimate the fair value of these financial instruments. |
Derivative instruments |
The Company holds warrants to purchase common stock in an entity that meet the definition of a derivative. Derivative instruments are carried at fair value on the consolidated balance sheets. Gains or losses from changes in the fair value of the warrants are recognized on the consolidated statements of income in the period in which they occur. |
Revenue recognition |
Revenue is recognized when (1) there is persuasive evidence of an arrangement, (2) the fee is fixed or determinable, (3) services have been rendered and payment has been contractually earned, and (4) collectibility is reasonably assured. Fees are generally billable when a letter of agreement is signed by the member, and fees receivable during the subsequent twelve month period and related deferred revenue are recorded upon the commencement of the membership or collection of fees, if earlier. In many of the Company’s higher priced programs and membership agreements with terms that are greater than one year, fees may be billed on an installment basis. |
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The Company’s membership agreements with its customers generally include more than one deliverable. Deliverables are determined based upon the availability and delivery method of the services and may include: best practices research; executive education curricula; cloud-based content, databases, and calculators; performance or benchmarking reports; diagnostic tools; interactive advisory support; and performance technology software. Access to such deliverables is generally available on an unlimited basis over the membership period. When an agreement contains multiple deliverables, the Company reviews the deliverables to determine if they qualify as separate units of accounting. In order for deliverables in a multiple-deliverable arrangement to be treated as separate units of accounting, the deliverables must have standalone value upon delivery, and delivery or performance of undelivered items in an arrangement with a general right of return must be probable. If the Company determines that there are separate units of accounting, arrangement consideration at the inception of the membership period is allocated to all deliverables based on the relative selling price method in accordance with the selling price hierarchy. Because of the unique nature of the Company’s products, neither vendor specific objective evidence nor third-party evidence is available. Therefore, the Company utilizes best estimate of selling price to allocate arrangement consideration in multiple element arrangements. |
The Company’s membership programs may contain certain deliverables that do not have standalone value and therefore are not accounted for separately. In general, the deliverables in membership programs are consistently available throughout the membership period, and, as a result, the consideration is recognized ratably over the membership period. When a service offering includes unlimited and limited service offerings, revenue is recognized over the appropriate service period, either ratably, if the service is consistently available, or, if the service is not consistently available, upon the earlier of the delivery of the service or the completion of the membership period, provided that all other criteria for recognition have been met. |
Certain membership programs incorporate hosted performance technology software. In many of these agreements, members are charged set-up fees in addition to subscription fees for access to the hosted cloud-based software and related membership services. Both set-up fees and subscription fees are recognized ratably over the term of the membership agreement, which is generally three years, and is consistent with the pattern of the delivery of services under these arrangements. Upon launch of a new program that incorporates software, all program revenue is deferred until the program is generally available for release to the Company’s membership, and then recognized ratably over the remainder of the contract term of each agreement. |
The Company also performs professional services sold under separate agreements that include management and consulting services. The Company recognizes professional services revenues on a time-and-materials basis as services are rendered. |
Deferred incentive compensation and other charges |
Incentive compensation to employees related to the negotiation of new and renewal memberships, license fees to third-party vendors for tools, data, and software incorporated in specific memberships that include performance technology software, and other direct and incremental costs associated with specific memberships are deferred and amortized over the term of the related memberships. |
Deferred compensation plan |
Effective July 1, 2013, the Company implemented a Deferred Compensation Plan (the ''Plan’’) for certain employees to provide an opportunity to defer compensation on a pre-tax basis. The Plan provides for deferred amounts to be credited with investment returns based upon investment options selected by participants from alternatives designated from time to time by the plan administrative committee. Investment earnings associated with the Plan’s assets are included in other income, net while changes in individual participant account balances are recorded as compensation expense in the consolidated statements of income. The Plan also allows the Company to make discretionary contributions at any time based on individual or overall Company performance, which may be subject to a different vesting schedule than elective deferrals, and provides that the Company may make contributions in an amount equal to the amount of any 401(k) plan matching contribution that is not credited to the participant’s 401(k) account due to such employee's participation in the Plan. The Company did not make any discretionary contributions to the Plan in the fiscal year ended March 31, 2014. The income earned and expense incurred related to the Plan was immaterial for the fiscal year ended March 31, 2014. |
Operating leases |
The Company recognizes rent expense under operating leases on a straight-line basis over the non-cancelable term of the lease, including free-rent periods. Lease-incentives relating to allowances provided by landlords are amortized over the term of the lease as a reduction of rent expense. The Company recognizes sublease income on a straight-line basis over the term of the sublease, including free rent periods and escalations, as a reduction of rent expense. Costs associated with acquiring a subtenant, including broker commissions and tenant allowances, are amortized over the sublease term as a reduction of sublease income. |
Stock-based compensation |
The Company has several stock-based compensation plans which are described more fully in Note 15, “Stock-based compensation.” These plans provide for the granting of stock options and restricted stock units (“RSUs”) to employees, non-employee members of the Company’s Board of Directors and any other service providers who have been retained to provide consulting, advisory or other services to the Company. Stock-based compensation cost is measured at the grant date of the stock-based awards based on their fair values, and is recognized as an expense in the consolidated statements of income over the vesting periods of the awards. The fair value of RSUs is determined as the fair market value of the underlying shares on the date of grant. The Company calculates the fair value of all stock option awards, with the exception of the stock options issued with market-based conditions, on the date of grant using the Black-Scholes model. The fair value of stock options issued with market-based conditions is calculated on the date of grant using a lattice option-pricing model. Forfeitures are estimated based on historical experience at the time of grant and adjusted, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company bases its fair value estimates on assumptions it believes to be reasonable but that are inherently uncertain. |
Other income, net |
Other income, net for the fiscal year ended March 31, 2012 includes $2.4 million of interest income earned from the Company’s marketable securities, a $0.1 million gain on foreign exchange rates, and a $0.5 million gain on an investment in common stock warrants. Other income, net for the fiscal year ended March 31, 2013 includes $3.4 million of interest income earned from the Company’s marketable securities, a $0.5 million loss on foreign exchange rates, $0.3 million in credit facility fees, and a $0.1 million gain on an investment in common stock warrants. Other income, net for the fiscal year ended March 31, 2014 includes $3.3 million of interest income earned from the Company’s marketable securities, a $0.2 million loss on foreign exchange rates, $0.6 million in credit facility fees, and a $0.2 million realized gain on sale of marketable securities. |
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Income taxes |
Deferred income taxes are determined using the asset and liability method. Under this method, temporary differences arise as a result of the difference between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or the entire deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax law and tax rates on the date of the enactment of the change. |
Discontinued operations |
The Company presents the assets and liabilities of programs which meet the criteria for discontinued operations separately in the consolidated balance sheets. In addition, the results of operations for those discontinued operations are presented as such in the Company’s consolidated statements of income. For periods prior to the program qualifying for discontinued operations, the Company reclassifies the results of operations to discontinued operations. In addition, the net gain or loss (including any impairment loss) on the disposal is presented as discontinued operations when recognized. The change in presentation for discontinued operations does not have any impact on the Company’s financial condition or results of operations. The Company combines the operating, investing, and financing portions of cash flows attributable to discontinued operations with the respective cash flows from continuing operations on the consolidated statements of cash flows. |
Concentrations of risk |
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of membership fees receivable, cash and cash equivalents, and marketable securities. The credit risk with respect to membership fees receivable is generally diversified due to the large number of entities comprising the Company’s membership base, and the Company establishes allowances for potential credit losses. No one member accounted for more than 1.5% of revenue for any period presented. The Company maintains cash and cash equivalents and marketable securities with financial institutions. Marketable securities consist of U.S. government-sponsored enterprise obligations and various state tax-exempt notes and bonds. The Company performs periodic evaluations of the relative credit ratings related to the cash, cash equivalents, and marketable securities. |
In the fiscal year ended March 31, 2012, 2013, and 2014, the Company generated approximately 3.5%, 4.0%, and 3.1%, of revenue, respectively, from members outside the United States. The Company’s limited international operations subject the Company to risks related to currency exchange fluctuations. Prices for the Company’s services sold to members located outside the United States are sometimes denominated in local currencies. Increases in the value of the U.S. dollar against local currencies in countries where the Company has members may result in a foreign exchange loss recognized by the Company. |
Earnings per share |
Basic earnings per share is computed by dividing net income attributable to common stockholders by the number of weighted average common shares outstanding during the period. Diluted earnings per share is computed by dividing net income attributable to common stockholders by the number of weighted average common shares increased by the dilutive effects of potential common shares outstanding during the period. The number of potential common shares outstanding is determined in accordance with the treasury stock method, using the Company’s prevailing tax rates. Certain potential common share equivalents were not included in the computation because their effect was anti-dilutive. |
A reconciliation of basic to diluted weighted average common shares outstanding is as follows (in thousands): |
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| Year Ended March 31, | | | |
| 2012 | | 2013 | | 2014 | | | |
Basic weighted average common shares outstanding | 32,808 | | | 34,723 | | | 35,909 | | | | |
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Effect of dilutive outstanding stock-based awards | 1,742 | | | 1,583 | | | 1,050 | | | | |
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Dilutive impact of earn-out liability | 110 | | | — | | | — | | | | |
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Diluted weighted average common shares outstanding | 34,660 | | | 36,306 | | | 36,959 | | | | |
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In the fiscal years ended March 31, 2012, 2013, and 2014, 78,000, 341,000, and 1.0 million shares, respectively, related to share-based compensation awards have been excluded from the calculation of the effect of dilutive outstanding stock-based awards shown above because their effect was anti-dilutive. |
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Recent accounting pronouncements |
Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification. The Company considers the applicability and impact of all recent ASUs. ASUs not listed below were assessed and determined to be not applicable or are expected to have minimal impact on the Company’s consolidated financial position and results of operations. |
In July 2013, the FASB issued accounting guidance related to income taxes, which requires entities to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward when settlement in this manner is available under the tax law. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, with early adoption permitted. The Company will adopt this guidance for its fiscal year beginning April 1, 2014. The Company does not expect the adoption of this guidance to have a material effect on its financial position or results of operations. |