DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2013 |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ' |
Description of Business | ' |
Description of Business—Ruckus Wireless, Inc. (“Ruckus”) is a leading provider of carrier-class Wi-Fi solutions. Ruckus’s solutions, which it calls Smart Wi-Fi, are used by service providers and enterprises to solve network capacity and coverage challenges associated with the rapidly increasing traffic and number of users and client devices on wireless networks. Ruckus’s Smart Wi-Fi solutions offer carrier-class features and functionality such as enhanced reliability, consistent performance, extended range and massive scalability. Ruckus’s products include gateways, wireless local area network ("WLAN") controllers and high performance access points. These products incorporate the Company’s patented and proprietary technologies, such as Smart Radio, Smart QoS, Smart Mesh and Smart Scale, to enable high performance, reliable, adaptive and high capacity connectivity in a wide range of challenging operating conditions faced by service providers and enterprises. |
Principles of Consolidation | ' |
Principles of Consolidation—The consolidated financial statements include the accounts of Ruckus and its wholly owned subsidiaries (collectively, the “Company”). All intercompany balances and transactions have been eliminated in consolidation. |
Use of Estimates | ' |
Use of Estimates—The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant estimates and assumptions made by management include the determination of revenue recognition, allowance for doubtful accounts, goodwill and intangible valuation, the fair value of stock awards, inventory valuation, estimates of warranty liability and accounting for income taxes. Management bases its estimates on historical experience and also on assumptions that it believes are reasonable. Actual results could materially differ from those estimates. |
Concentrations of Credit Risk and Significant Customers | ' |
Concentrations of Credit Risk and Significant Customers—Financial instruments that subject the Company to significant concentrations of credit risk primarily consist of cash, cash equivalents, investments and accounts receivable. The Company invests only in high credit quality instruments and maintains its cash, cash equivalents and available-for-sale investments in fixed income securities. Management believes that the financial institutions that hold the Company's investments are financially sound and, accordingly, are subject to minimal credit risk. Deposits held with banks may exceed the amount of insurance provided on such deposits. |
The Company's accounts receivable are primarily derived from distributors and carriers located in the Americas, Europe, and Asia Pacific. The Company generally does not require its customers to provide collateral to support accounts receivable. To reduce credit risk, management performs ongoing credit evaluations of its customers’ financial condition. The Company has recorded an allowance for doubtful accounts for those receivables management has determined to not be collectible. |
The percentages of revenues from individual customers totaling greater than 10% of total consolidated Company revenues were as follows: |
| | | |
| | | | | | | | | | | |
| Year Ended December 31, | | | |
| 2013 | | 2012 | | 2011 | | | |
Distributor A | 15.2 | % | | 16.3 | % | | 16.3 | % | | | |
Distributor B | 12.4 | % | | * | | | 11.4 | % | | | |
| | |
Distributor C | * | | | 12.5 | % | | 12.7 | % | | | |
| | |
* Less than 10% | | | | | | | | |
The percentage of receivables from individual customers totaling greater than 10% of total consolidated Company accounts receivable were as follows: |
| | | | | | |
| | | | | | | | | | | |
| December 31, | | | | | | |
| 2013 | | 2012 | | | | | | |
Distributor A | 11.6 | % | | 10.3 | % | | | | | | |
Distributor D | 11.2 | % | | * | | | | | | | |
| | | | | |
Distributor E | 10.4 | % | | * | | | | | | | |
| | | | | |
* Less than 10% | | | | | | | | | |
Cash and Cash Equivalents | ' |
Cash and Cash Equivalents—The Company considers all highly liquid financial instruments with original maturities of 90 days or less to be cash equivalents. Cash and cash equivalents are stated at cost, which approximates fair value. The Company’s cash equivalents included interest-bearing bank accounts and money market funds. |
Restricted Cash | ' |
Restricted Cash—As of December 31, 2013, the Company held $5.0 million in escrow to secure an indemnification agreement. If triggered, the Company will indemnify a channel partner for reimbursement of penalties assessed under the Information Technology Act of India (“IT Act”). |
Fair Value of Financial Instruments | ' |
Fair Value of Financial Instruments— The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which to transact and the market-based risk. The Company applies fair value accounting for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The carrying amounts reported in the consolidated financial statements approximate the fair value for cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities, due to their short-term nature. |
Short-Term Investments | ' |
Short-Term Investments—The Company classifies investments as available-for-sale at the time of purchase as these investments are available to fund current operations. Available-for-sale investments are initially recorded at cost and periodically adjusted to fair value in the consolidated balance sheets. Unrealized gains and losses on these investments are reported as a separate component of accumulated other comprehensive income (loss). Realized gains and losses are reported in the consolidated statements of operations. A specific identification method is used to determine the cost basis of the short-term investments sold. The effects of reclassifications from accumulated other comprehensive loss to the income statement were insignificant for the year ended December 31, 2013. The investments are adjusted for the amortization of premiums and discounts until maturity and such amortization is included in interest income (expense). |
The Company's short-term investments consist primarily of corporate bonds and commercial paper. As the Company views all investments as available for sale, management has the ability and intent, if necessary, to liquidate any of these investments in order to meet the Company’s liquidity needs within the next 12 months. The Company’s policy is to protect the value of its investment portfolio and minimize principal risk by earning returns based on current interest rates. |
Investments are considered impaired when a decline in fair value is judged to be other-than-temporary. The Company consults with its investment managers and considers available quantitative and qualitative evidence in evaluating potential impairment of the investments on a quarterly basis. If the cost of an individual investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, the duration and extent to which the fair value is less than cost, and the Company's intent and ability to hold the investment. Once a decline in fair value is determined to be other-than-temporary, the Company will record an impairment charge and establish a new cost basis in the investment. During the year ended December 31, 2013, the Company did not consider any of its investments to be other-than-temporarily impaired. |
Allowance for Doubtful Accounts | ' |
Allowance for Doubtful Accounts—The Company records an allowance for doubtful accounts based on historical experience and a detailed assessment of the collectability of its accounts receivable. In estimating the allowance for doubtful accounts, management considers, among other factors, the aging of the accounts receivable, historical write-offs, and the credit-worthiness of each customer. If circumstances change, such as higher-than-expected defaults or an unexpected material adverse change in a major customer’s ability to meet its financial obligations, the Company’s estimate of the recoverability of the amounts due could be reduced by a material amount. |
Activity in the allowance for doubtful accounts was as follows (in thousands): |
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2013 | | 2012 | | 2011 |
Balance at beginning of year | $ | 140 | | | $ | 117 | | | $ | 66 | |
|
Charged to expenses | 911 | | | 179 | | | 57 | |
|
Write-offs | (651 | ) | | (156 | ) | | (6 | ) |
Balance at end of year | $ | 400 | | | $ | 140 | | | $ | 117 | |
|
Inventories | ' |
Inventories—Inventories are carried at the lower of cost on a first-in, first-out basis, or market value. The Company evaluates inventory for excess and obsolete products, based on management’s assessment of future demand and market conditions. The Company subcontracts manufacturing of substantially all of its products. At December 31, 2013 and 2012, inventories were predominately comprised of finished goods. |
Deferred Costs | ' |
Deferred Costs—When the Company’s products have been delivered, but the product revenue associated with the arrangement has been deferred as a result of not meeting the revenue recognition criteria (see “Revenue Recognition” below), the related product costs are also deferred if the inventory is deemed recoverable. The deferred costs are recognized in cost of revenues when the related deferred revenue is recognized or when the inventory is deemed unrecoverable. |
Property, Plant and Equipment, Net | ' |
Property and Equipment—Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful lives of the leasehold improvements or the term of the related lease. |
Goodwill | ' |
Goodwill—Goodwill represents the excess of the purchase price of an acquired business over the fair value of the underlying net tangible and intangible assets. The Company evaluates goodwill for impairment annually in the fourth quarter of the Company’s fiscal year or whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Triggering events that may indicate impairment include, but are not limited to, a significant adverse change in customer demand or business climate that could affect the value of goodwill or a significant decrease in expected cash flows. No impairment of goodwill has been identified through December 31, 2013. |
Intangible Assets, Net | ' |
Intangible Assets—Intangible assets consist of existing technology and in-process research and development resulting from acquisitions. The existing technology intangible assets are recorded at fair value and are amortized on a straight-line basis over their estimated useful lives. In-process research and development is accounted for as an indefinite-lived intangible asset until completion or abandonment of the associated research and development efforts. Upon completion of development, the underlying intangible asset is amortized over its estimated useful life. |
Impairment of Long-Lived Assets | ' |
Impairment of Long-Lived Assets—Management reviews property, equipment and intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Determination of recoverability of purchased intangible assets is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. If property and equipment or intangible assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value. No impairment of property, equipment or intangible assets has been identified through December 31, 2013. |
Revenue Recognition | ' |
Revenue Recognition—The Company generates revenue from the sale of hardware with embedded software and related post contract support (“PCS”) through a direct sales force and indirect relationships with its channel partners. |
Revenue is recognized when all of the following criteria are met: |
| | | | | | | | | | | |
• | Persuasive evidence of an arrangement exists. The Company relies upon sales contracts and purchase orders to determine the existence of an arrangement. | | | | | | | | | | |
| | | | | | | | | | | |
• | Delivery has occurred. Delivery is deemed to have occurred when title has transferred. The Company uses shipping documents to verify transfer of title. | | | | | | | | | | |
| | | | | | | | | | | |
• | The fee is fixed or determinable. The Company assesses whether the fee is fixed or determinable based on the terms associated with the transaction. | | | | | | | | | | |
| | | | | | | | | | | |
• | Collectability is reasonably assured. The Company assesses collectability based on credit analysis and payment history. | | | | | | | | | | |
The Company recognizes product revenue at the time of title transfer provided that all other revenue recognition criteria have been met. |
Certain distributors that stock the Company’s products are granted stock rotation rights as well as rebates for sales of the Company’s products. If the Company cannot reasonably estimate the impact of stock rotation rights and rebates for specific distributors, the arrangement fee is not fixed and determinable when products are shipped and revenue is deferred until the Company’s products are shipped to the distributor’s customer. |
Certain of the Company’s arrangements are multiple-element arrangements which consist of hardware products with embedded software and PCS. The Company’s hardware with the embedded software (which is a proprietary operating system that together with the hardware delivers the functionality desired by the Company’s customers), is considered a separate unit of accounting from PCS as the Company’s customers often buy its hardware products without PCS. For multiple-element arrangements, the Company allocates revenue to each unit of accounting based on an estimated selling price at the inception of the arrangement. The total arrangement consideration is allocated to each separate unit of accounting using the relative estimated selling prices of each unit. The Company limits the amount of revenue recognized for delivered elements to an amount that is not contingent upon future delivery of additional products or service. |
To determine the estimated selling price in multiple-element arrangements, the Company first looks to establish vendor specific objective evidence (“VSOE”) of selling price using the prices charged for a deliverable when sold separately. If VSOE of selling price cannot be established for a deliverable, the Company looks to establish third-party evidence (“TPE”) of selling price by evaluating the pricing of similar and interchangeable competitor products or services in standalone arrangements. However, as the Company’s products contain a significant element of proprietary technology and offer substantially different features and functionality from its competitors, the Company is unable to obtain comparable pricing information with respect to its competitors’ products. Therefore, the Company has not been able to obtain reliable evidence of TPE of selling price. If neither VSOE nor TPE of selling price can be established for a deliverable, the Company establishes best estimated selling price (“BESP”) by reviewing historical transaction information and considering several other internal factors including discounting and margin objectives. |
The Company makes certain estimates and maintains allowances for sales returns, stock rotation, and other programs based on its historical experience. To date, these estimates have not been significant. |
The Company recognizes services revenue from PCS ratably over the contractual service period, which is typically one to five years. Other services revenue is recognized as the services are rendered and has not been significant to date. |
Revenues are reported net of sales taxes. Shipping charges billed to partners are included in revenues and related costs are included in cost of revenue. To date, shipping charges have not been significant. |
Research and Development Costs | ' |
Software Development Costs—Based on the Company product development process, technological feasibility is established upon completion of the working model. To date, costs incurred by the Company between the completion of a working model and the point at which the product is ready for general release have been insignificant. Accordingly, the Company has charged all such costs to research and development expense in the period incurred. |
Share-based Compensation | ' |
Stock-Based Compensation—The Company measures compensation expense for all stock-based payment awards granted to employees, including stock options, restricted stock units (“RSUs”) and purchases under the Company's Employee Stock Purchase Plan (“ESPP”), based on the estimated fair value on the date of the grant. The fair value of each stock option granted is estimated using the Black-Scholes option pricing model. The fair value of each RSU granted represents the closing price of the Company's common stock on the date of grant. The fair value of purchases under the Company's ESPP is calculated based on the closing price of the Company's common stock on the date of grant and the value of put and call options estimated using the Black-Scholes option pricing model. Stock-based compensation is recognized on a straight-line basis over the requisite service period, net of estimated forfeitures. The forfeiture rate is based on an analysis of the Company’s actual historical forfeitures. |
The Company accounts for stock options issued to nonemployees based on the fair value of the awards determined using the Black-Scholes option pricing model. The fair value of stock options granted to nonemployees is re-measured as the stock options vest, and the resulting change in fair value, if any, is recognized in the Company’s consolidated statement of operations during the period the related services are rendered. |
Foreign Currency | ' |
Foreign Currency—The functional currency of the Company’s foreign subsidiaries is the U.S. dollar. Monetary assets and liabilities are re-measured using the current exchange rate at the balance sheet date. Non-monetary assets and liabilities and capital accounts are re-measured using historical exchange rates. Revenues and expenses are re-measured using the average exchange rates in effect during the period. Foreign currency re-measurement gains and losses have not been material for any periods presented. |
Income Tax | ' |
Income Taxes—The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between financial reporting and tax reporting bases of assets and liabilities, and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized. Significant management judgment is required in determining the period in which the reversal of a valuation allowance should occur. The Company is required to consider all available evidence, both positive and negative, such as historical levels of income and future forecasts of taxable income amongst other items, in determining whether a full or partial release of its valuation allowance is required. The Company is also required to forecast future taxable income in accordance with accounting standards that address income taxes to assess the appropriateness of a valuation allowance, which further requires the exercise of significant management judgment. |
The Company records uncertain tax positions in accordance with accounting standards on the basis of a two-step process whereby (1) a determination is made as to whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold the Company recognizes the largest amount of tax benefit that is greater than 50% likely to be realized upon ultimate settlement with the related tax authority. |
Loss Contingencies | ' |
Loss Contingencies— The Company is subject to the possibility of various loss contingencies arising in the ordinary course of business. The Company considers the likelihood of loss or impairment of an asset, or the incurrence of a liability, as well as the Company's ability to reasonably estimate the amount of loss, in determining loss contingencies. An estimated loss contingency is accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. If the Company determines that a loss is possible and the range of the loss can be reasonably determined, then the Company discloses the range of the possible loss. The Company regularly evaluates available current information available to determine whether an accrual is required, an accrual should be adjusted or a range of possible loss should be disclosed. |
Comprehensive Income (Loss) | ' |
In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2011-05, Presentation of Comprehensive Income. The standard requires entities to have more detailed reporting of comprehensive income. Specifically, the standard allows an entity to present components of net income and components of other comprehensive income in one continuous statement of comprehensive income, or in two separate, but consecutive statements. The guidance became effective for the Company in the first quarter of 2013 and applied retrospectively. The Company's adoption of this guidance did not have a material impact on its consolidated financial position, results of operations, or cash flows. |
In February 2013, the FASB issued Accounting Standards Update 2013-02, Comprehensive Income (Topic 220)-Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The standard requires entities to present (either on the face of the income statement or in the notes) the effects on significant reclassifications of line items of the income statement out of accumulated other comprehensive income. The guidance became effective for the Company in the first quarter of 2013. The Company's adoption of this guidance did not have a material impact on its consolidated financial position, results of operations, or cash flows. |
Recent Accounting Pronouncements | ' |
In June 2013, the FASB issued Accounting Standards Update 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The standard gives guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists, with the purpose of reducing diversity in practice. This new standard requires the netting of unrecognized tax benefits against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax positions. The guidance will become effective for the Company in the first quarter of 2014 and should be applied prospectively. Early adoption is permitted. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial position, results of operations, or cash flows. |