| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been
prepared in conformity with accounting principles generally
accepted in the United States of America (“GAAP”) and
include the accounts of the Company and its wholly owned
subsidiaries after elimination of all significant intercompany
accounts and transactions. All dollar amounts in the financial
statements and in the notes to the consolidated financial
statements, except share and per share amounts, are stated in
thousands of U.S. dollars unless otherwise indicated.
The accompanying consolidated balance sheet as of June 30,
2015, the consolidated statements of operations and the
consolidated statements of comprehensive income for the three and
six months ended June 30, 2015 and 2014, and the consolidated
statements of cash flows for the six months ended June 30,
2015 and 2014 are unaudited. The interim unaudited financial
statements have been prepared on the same basis as the annual
audited financial statements and, in the opinion of management,
reflect all adjustments, which include only normal recurring
adjustments, necessary for the fair statement of the
Company’s financial position as of June 30, 2015, the
results of its operation and its comprehensive income for the three
and six months ended June 30, 2015 and 2014, and its cash
flows for the six months ended June 30, 2015 and 2014. The
consolidated financial data and other information disclosed in
these notes related to the three and six months ended June 30,
2015 and 2014 are also unaudited. The results for the three and six
months ended June 30, 2015 are not necessarily indicative of
results to be expected for the year ending December 31, 2015
or for any other interim periods or future year.
Certain information and footnote disclosures normally included in
the Company’s annual audited consolidated financial
statements and accompanying notes have been condensed or omitted in
these interim financial statements. Accordingly, these unaudited
interim consolidated financial statements should be read in
conjunction with the Company’s audited consolidated financial
statements and notes thereto for the year ended December 31,
2014 included in its Annual Report on Form 10-K (“Annual
Report”) filed with the Securities and Exchange Commission on
February 27, 2015.
Fair Value Measurements
Certain assets and liabilities are carried at fair value under
GAAP. Fair value is defined as the exchange price that would be
received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants
on the measurement date. Valuation techniques used to measure fair
value must maximize the use of observable inputs and minimize the
use of unobservable inputs. A fair value hierarchy based on three
levels of inputs, of which the first two are considered observable
and the last is considered unobservable, is used to measure fair
value:
• Level 1—Quoted prices in active
markets for identical assets or liabilities. Fleetmatics did not
have any financial assets and liabilities as of June 30, 2015
designated as Level 1.
• Level 2—Observable inputs
(other than Level 1 quoted prices) such as quoted prices in active
markets for similar assets or liabilities, quoted prices in markets
that are not active for identical or similar assets or liabilities,
or other inputs that are observable or can be corroborated by
observable market data. Fleetmatics did not have any financial
assets and liabilities as of June 30, 2015 designated as Level
2.
• Level 3—Unobservable inputs
that are supported by little or no market activity and that are
significant to determining the fair value of the assets or
liabilities, including pricing models, discounted cash flow
methodologies and similar techniques. Fleetmatics has a contingent
consideration liability assumed as a result of the Ornicar
acquisition of $2,322 as of June 30, 2015 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 Ornicar achieving
certain unit sales and pricing targets at the time of acquisition
and the discount rate that is based on the Company’s weighted
average cost of capital which is then adjusted for the time value
of money. The probability weighting will be adjusted as the actual
results provide the Company with more reliable information to
weight the probability scenarios.
The carrying values of accounts receivable, accounts payable and
accrued expenses and other liabilities (with the exception of the
Level 3 fair value measurement noted above) approximate fair value
due to the short-term nature of these assets and liabilities. As of
June 30, 2015 and December 31, 2014, the Company had no
other assets or liabilities that would be classified under this
fair value hierarchy.
Deferred Commissions
The Company capitalizes commission costs that are incremental and
directly related to the acquisition of customer contracts. For the
majority of its customer contracts, the Company pays commissions in
full when it receives the initial customer contract for a new
subscription or a renewal subscription. For all other customer
contracts, the Company pays commissions in full when it receives
the initial customer payment for a new subscription or a renewal
subscription. Commission costs are capitalized upon payment and are
amortized as expense ratably over the term of the related
non-cancelable customer contract, in proportion to the recognition
of the subscription revenue. If a subscription agreement is
terminated, the unamortized portion of any deferred commission cost
is recognized as expense immediately.
Commission costs capitalized during the three months ended
June 30, 2015 and 2014 totaled $3,089 and $3,939,
respectively, and during the six months ended June 30, 2015
and 2014 totaled $5,638 and $5,959, respectively. Amortization of
deferred commissions totaled $2,508 and $2,003 for the three months
ended June 30, 2015 and 2014, respectively, and totaled $4,947
and $3,761 for the six months ended June 30, 2015 and 2014,
respectively, and is included in sales and marketing expense in the
consolidated statements of operations. Deferred commission costs,
net of amortization, are included in other current and long-term
assets in the consolidated balance sheets and totaled $16,174 and
$15,496 as of June 30, 2015 and December 31, 2014,
respectively. Foreign exchange differences also contribute to
changes in the net amount of these deferred commission costs.
Capitalized In-Vehicle Device Costs
For customer arrangements in which we retain ownership of the
in-vehicle devices installed in a customer’s fleet, we
capitalize the cost of the in-vehicle devices (including
installation and shipping costs) as a component of property and
equipment in our consolidated balance sheets, and we depreciate
these assets on a straight-line basis over their estimated useful
life, which is currently six years. If a customer subscription
agreement is canceled or expires prior to the end of the expected
useful life of the in-vehicle device, the carrying value of the
asset is depreciated in full with expense immediately recorded as
cost of subscription revenue. The carrying value of these installed
in-vehicle devices (including installation and shipping costs) was
$68,987 and $61,804 at June 30, 2015 and December 31,
2014, respectively. Depreciation of these installed in-vehicle
devices totaled is included in cost of subscription revenue in our
consolidated statements of operations.
For the limited number of customer arrangements in which title to
the in-vehicle devices transfers to the customer upon delivery or
installation of the in-vehicle device (for which the Company
receives an up-front fee from the customer), the Company defers the
costs of the installed in-vehicle devices (including installation
and shipping costs) as they are directly related to the revenue
that the Company derives from the sale of the devices and that it
recognizes ratably over the estimated average customer relationship
period of six years. The Company capitalizes these in-vehicle
device costs and amortizes the deferred costs as expense ratably
over the estimated average customer relationship period, in
proportion to the recognition of the up-front fee revenue.
Costs of in-vehicle devices owned by customers that were
capitalized during the three months ended June 30, 2015 and
2014 totaled $1 and $40, respectively, and during the six months
ended June 30, 2015 and 2014 totaled $13 and $71,
respectively. Amortization of these capitalized costs totaled $91
and $372 for the three months ended June 30, 2015 and 2014,
respectively, and $517 and $658 for the six months ended
June 30, 2015 and 2014, respectively, and is included in cost
of subscription revenue in the consolidated statements of
operations. Capitalized costs related to these in-vehicle devices
of which title has transferred to customers, net of amortization,
are included in other current and long-term assets in the
consolidated balance sheets and totaled $1,221 and $2,398 as of
June 30, 2015 and December 31, 2014, respectively.
Recently Issued and Adopted Accounting
Pronouncements
In April 2015, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) 2015-03, Interest — Imputation of
Interest (Subtopic 835-30): Simplifying the Presentation of Debt
Issuance Costs
In August 2014, the FASB issued ASU 2014-15, Presentation of
Financial Statements — Going Concern
In May 2014, the FASB issued ASU 2014-09, Revenue from
Contracts with Customers |
