The accompanying notes are an integral part of these unaudited, consolidated financial statements.
The accompanying notes are an integral part of these unaudited, consolidated financial statements.
The accompanying notes are an integral part of these unaudited, consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
|
Nature of Business and Basis of Presentation
|
The Company
SeaChange International, Inc. and its consolidated subsidiaries (collectively SeaChange, we, or the
Company) is an industry leader in the delivery of multiscreen video, advertising and premium
over-the-top
(OTT) video. Our products and services
facilitate the aggregation, licensing, management and distribution of video and advertising content to cable television system operators, telecommunications companies, satellite operators and media companies.
Basis of Presentation
The accompanying unaudited consolidated financial statements include the accounts of SeaChange International, Inc. and its subsidiaries
(SeaChange or the Company) and are prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial reports as well as rules and regulations of the Securities and
Exchange Commission (SEC). All intercompany transactions and balances have been eliminated. Certain information and footnote disclosures normally included in financial statements prepared under U.S. GAAP have been condensed or omitted
pursuant to such regulations. However, we believe that the disclosures are adequate to make the information presented not misleading. In the opinion of management, the accompanying financial statements include all adjustments, consisting of
only normal recurring items, necessary to present a fair presentation of the consolidated financial statements for the periods shown. These consolidated financial statements should be read in conjunction with our most recently audited financial
statements and related footnotes included in our Annual Report on Form
10-K
(Form
10-K)
as filed with the SEC. The balance sheet data as of January 31,
2016 that is included in this Quarterly Report on Form
10-Q
(Form
10-Q)
was derived from our audited financial statements. We have reclassified certain
amounts previously reported in our financial statements to conform to current presentation.
The preparation of these financial statements
in conformity with U.S. GAAP, requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. Interim results are not necessarily
indicative of the operating results for the full fiscal year or any future periods and actual results may differ from our estimates. During the three and nine months ended October 31, 2016, there have been no material changes to our significant
accounting policies that were described in our fiscal 2016 Form
10-K,
as filed with the SEC.
2.
|
Significant Accounting Policies
|
Revenue Recognition
Our transactions frequently involve the sales of hardware, software, systems and services in multiple-element arrangements. Revenues from sales
of hardware, software and systems that do not require significant modification or customization of the underlying software are recognized when:
|
|
|
persuasive evidence of an arrangement exists;
|
|
|
|
delivery has occurred, and title and risk of loss have passed to the customer;
|
|
|
|
fees are fixed or determinable; and
|
|
|
|
collection of the related receivable is considered probable.
|
Customers are billed for
installation, training, project management and at least one year of product maintenance and technical support at the time of the product sale. Revenue from these activities is deferred at the time of the product sale and recognized ratably over the
period these services are performed. Revenue from ongoing product maintenance and technical support agreements is recognized ratably over the period of the related agreements. Revenue from software development contracts that include significant
modification or customization, including software product enhancements, is recognized based on the percentage of completion contract accounting method using labor efforts expended in relation to estimates of total labor efforts to complete the
contract. The percentage of completion method requires that adjustments or
re-evaluations
to estimated project revenues and costs be recognized on a
project-to-date
cumulative basis, as changes to the estimates are identified. Revisions to project estimates are made as additional information becomes known, including information that becomes available
subsequent to the date of the consolidated financial statements up through the date such consolidated financial statements are filed with the SEC. If the final estimated profit
6
to complete a long-term contract indicates a loss, a provision is recorded immediately for the total loss anticipated. Accounting for contract amendments and customer change orders are included
in contract accounting when executed. Revenue from shipping and handling costs and other
out-of-pocket
expenses reimbursed by customers are included in revenues and cost
of revenues. Our share of intercompany profits associated with sales and services provided to affiliated companies are eliminated in consolidation in proportion to our equity ownership.
Contract accounting requires judgment relative to assessing risks, estimating revenues and costs and making assumptions including, in the case
of our professional services contracts, the total amount of labor required to complete a project and the complexity of the development and other technical work to be completed. Due to the size and nature of many of our contracts, the estimation of
total revenues and cost at completion is complicated and subject to many variables. Assumptions have to be made regarding the length of time to complete the contract because costs also include estimated third-party vendor and contract labor costs.
Penalties related to performance on contracts are considered in estimating sales and profit, and are recorded when there is sufficient information for us to assess anticipated performance. Third-party vendors assertions are also assessed and
considered in estimating costs and margin.
Revenue from the sale of software-only products remains within the scope of the software
revenue recognition rules. Maintenance and support, training, consulting, and installation services no longer fall within the scope of the software revenue recognition rules, except when they are sold with and relate to a software-only product.
Revenue recognition for products that no longer fall under the scope of the software revenue recognition rules is similar to that for other tangible products and Accounting Standard Update No. (ASU)
2009-13,
Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements,
amended Accounting Standards Codification No. (ASC) 605 and is applicable for
multiple-deliverable revenue arrangements. ASU
2009-13
allows companies to allocate revenue in a multiple-deliverable arrangement in a manner that better reflects the transactions economics.
Under the software revenue recognition rules, the fee is allocated to the various elements based on vendor-specific objective evidence
(VSOE) of fair value. Under this method, the total arrangement value is allocated first to undelivered elements based on their fair values, with the remainder being allocated to the delivered elements. Where fair value of undelivered
service elements has not been established, the total arrangement value is recognized over the period during which the services are performed. The amounts allocated to undelivered elements, which may include project management, training,
installation, maintenance and technical support and certain hardware and software components, are based upon the price charged when these elements are sold separately and unaccompanied by the other elements. The amount allocated to installation,
training and project management revenue is based upon standard hourly billing rates and the estimated time necessary to complete the service. These services are not essential to the functionality of systems as these services do not alter the
equipments capabilities, are available from other vendors and the systems are standard products. For multiple-element arrangements that include software development with significant modification or customization and systems sales where VSOE of
the fair value does not exist for the undelivered elements of the arrangement (other than maintenance and technical support), percentage of completion accounting is applied for revenue recognition purposes to the entire arrangement with the
exception of maintenance and technical support.
Under the revenue recognition rules for tangible products as amended by ASU
2009-13,
the fee from a multiple-deliverable arrangement is allocated to each of the deliverables based upon their relative selling prices as determined by a selling-price hierarchy. A deliverable in an arrangement
qualifies as a separate unit of accounting if the delivered item has value to the customer on a stand-alone basis. A delivered item that does not qualify as a separate unit of accounting is combined with the other undelivered items in the
arrangement and revenue is recognized for those combined deliverables as a single unit of accounting. The selling price used for each deliverable is based upon VSOE if available, third-party evidence (TPE) if VSOE is not available, and
best estimate of selling price (BESP) if neither VSOE nor TPE are available. TPE is the price of the Companys, or any competitors, largely interchangeable products or services in stand-alone sales to similarly situated
customers. BESP is the price at which we would sell the deliverable if it were sold regularly on a stand-alone basis, considering market conditions and entity-specific factors.
The selling prices used in the relative selling price allocation method for certain of our services are based upon VSOE. The selling prices
used in the relative selling price allocation method for third-party products from other vendors are based upon TPE. The selling prices used in the relative selling price allocation method for our hardware products, software, subscriptions, and
customized services for which VSOE does not exist are based upon BESP. We do not believe TPE exists for these products and services because they are differentiated from competing products and services in terms of functionality and performance and
there are no competing products or services that are largely interchangeable. Management establishes BESP with consideration for market conditions, such as the impact of competition and geographic considerations, and entity-specific factors, such as
the cost of the product, discounts provided and profit objectives. Management believes that BESP is reflective of reasonable pricing of that deliverable as if priced on a stand-alone basis.
7
For our cloud and managed service revenues, we generate revenue from two sources:
(1) subscription and support services; and (2) professional services and other. Subscription and support revenue includes subscription fees from customers accessing our cloud-based software platform and support fees. Our arrangements with
customers do not provide the customer with the right to take possession of the software supporting the cloud-based software platform at any time. Professional services and other revenue include fees from implementation and customization to support
customer requirements. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. For the most part, subscription and support
agreements are entered into for 12 to 36 months. Generally, a majority of the professional services component of the arrangements with customers is performed within a year of entering into a contract with the customer.
In most instances, revenue from a new customer acquisition is generated under sales agreements with multiple elements, comprised of
subscription and support and other professional services. We evaluate each element in a multiple-element arrangement to determine whether it represents a separate unit of accounting. An element constitutes a separate unit of accounting when the
delivered item has standalone value and delivery of the undelivered element is probable and within our control.
In determining when to
recognize revenue from a customer arrangement, we are often required to exercise judgment regarding the application of our accounting policies to a particular arrangement. The primary judgments used in evaluating revenue recognized in each period
involve: determining whether collection is probable, assessing whether the fee is fixed or determinable, and determining the fair value of the maintenance and service elements included in multiple-element software arrangements. Such judgments can
materially impact the amount of revenue that we record in a given period. While we follow specific and detailed rules and guidelines related to revenue recognition, we make and use significant management judgments and estimates in connection with
the revenue recognized in any reporting period, particularly in the areas described above. If management made different estimates or judgments, material differences in the timing of the recognition of revenue could occur.
Impairment of Assets
Indefinite-lived intangible assets, such as goodwill, are not amortized but are evaluated for impairment at the reporting unit level annually,
in our third quarter beginning August 1
st
. Indefinite-lived intangible assets may be tested for impairment on an interim basis in addition to the annual evaluation if an event occurs or
circumstances change such as declines in sales, earnings or cash flows, sustained decline in the Companys stock price, or material adverse changes in the business climate, which would more likely than not reduce the fair value of a reporting
unit below its carrying amount. See Note 6,
Goodwill and Intangible Assets,
to our consolidated financial statements for more information, including consideration of goodwill impairment.
We also evaluate other long-lived assets such as property and equipment and intangible assets with finite useful lives, on a regular basis for
the existence of facts or circumstances, both internal and external that may suggest an asset is not recoverable. If such circumstances exist, we evaluate the carrying value of long-lived assets to determine if impairment exists based upon estimated
undiscounted future cash flows over the remaining useful life of the assets and compare that value to the carrying value of the assets. Our cash flow estimates contain managements best estimates, using appropriate and customary assumptions and
projections at the time.
In the second quarter of fiscal 2017, we determined there to be triggering events that might possibly indicate
that the carrying amount of our long-lived assets may not be recoverable. These triggering events included a sustained decrease in share price during the period and our current-period operating loss combined with a history of operating losses. As a
result, we were required to test for the recoverability of our long-lived assets to determine whether an impairment loss should have been recognized as mentioned above. We determined that the estimated undiscounted future cash flows over the
remaining useful life of the long-lived assets exceeded the carrying value. Therefore, the assets were deemed recoverable and no impairment loss was recognized on long-lived assets as of July 31, 2016.
In the third quarter of fiscal 2017, in conjunction with the annual impairment analysis of goodwill, we determined that there were indications
that the carrying amount of our long-lived assets may not be recoverable. As a result, we were required to test for the recoverability of our long-lived assets to determine whether an impairment loss should be recognized. The Company compared its
forecasted undiscounted cash flows over the remaining useful life of the principal long-lived asset to the carrying value. We determined that the fair value of our long-lived asset group exceeds its carrying value at October 31, 2016 and,
accordingly, did not recognize an impairment loss on the long-lived assets.
Liquidity
We continue to realize the savings related to the wind down of the TimeLine Labs operation and the restructuring of our In-Home business from
Milpitas to Poland. Additionally, during the third quarter of fiscal 2017, we made substantial progress on a cost reduction program, which we expect to generate annualized savings of approximately $15 million. We have executed annualized cost
savings of approximately $7.5 million to date. These measures are important steps in restoring SeaChange to profitability and positive cash flow. The Company believes that existing funds and cash provided by future operating activities, augmented by
the plans highlighted above are adequate to satisfy our working capital, potential acquisitions and capital expenditure requirements and other contractual obligations for the foreseeable future, including at least the next 12 months.
8
3.
|
Fair Value Measurements
|
Definition and Hierarchy
The applicable accounting guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability
in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The guidance establishes a framework for measuring fair value and expands required disclosure
about the fair value measurements of assets and liabilities. This guidance requires us to classify and disclose assets and liabilities measured at fair value on a recurring basis, as well as fair value measurements of assets and liabilities measured
on a
non-recurring
basis in periods subsequent to initial measurement, in a fair value hierarchy.
The fair value hierarchy is broken down into three levels based on the reliability of inputs and requires an entity to maximize the use of
observable inputs, where available. The following summarizes the three levels of inputs required, as well as the assets and liabilities that we value using those levels of inputs:
|
|
|
Level 1 Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.
|
|
|
|
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 very active; or other inputs that are observable or can
be corroborated by observable market data for substantially the full term of the 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. The fair value of the contingent consideration
obligations related to our business acquisitions are valued using Level 3 inputs.
|
Valuation Techniques
Inputs to valuation techniques are observable and unobservable. Observable inputs reflect market data obtained from independent
sources, while unobservable inputs reflect our market assumptions. When developing fair value estimates for certain financial assets and liabilities, we maximize the use of observable inputs and minimize the use of unobservable inputs. When
available, we use quoted market prices, market comparables and discounted cash flow projections. Financial assets include money market funds, U.S. treasury notes or bonds and U.S. government agency bonds.
In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine fair value. If quoted
prices in active markets for identical assets or liabilities are not available to determine fair value, then we use quoted prices for similar assets and liabilities or inputs that are observable either directly or indirectly. In periods of market
inactivity, the observability of prices and inputs may be reduced for certain instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2 or from Level 2 to Level 3.
9
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
The following tables set forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of
October 31, 2016 and January 31, 2016. There were no fair value measurements of our financial assets and liabilities using significant Level 3 inputs for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at October 31, 2016 Using
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
Significant
|
|
|
|
|
|
|
Active
|
|
|
Other
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
|
October 31,
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
|
2016
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
|
(Amounts in thousands)
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market accounts (a)
|
|
$
|
2,721
|
|
|
$
|
2,721
|
|
|
$
|
|
|
Available-for-sale
marketable
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury notes and bonds - conventional
|
|
|
4,256
|
|
|
|
4,256
|
|
|
|
|
|
Non-current
marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury notes and bonds - conventional
|
|
|
2,004
|
|
|
|
2,004
|
|
|
|
|
|
U.S. government agency issues
|
|
|
4,010
|
|
|
|
|
|
|
|
4,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,991
|
|
|
$
|
8,981
|
|
|
$
|
4,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at January 31, 2016 Using
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
Significant
|
|
|
|
|
|
|
Active
|
|
|
Other
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
|
January 31,
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
|
2016
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
|
(Amounts in thousands)
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market accounts (a)
|
|
$
|
3,654
|
|
|
$
|
3,654
|
|
|
$
|
|
|
Available-for-sale
marketable
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury notes and bonds - conventional
|
|
|
502
|
|
|
|
502
|
|
|
|
|
|
U.S. government agency issues
|
|
|
1,002
|
|
|
|
|
|
|
|
1,002
|
|
Non-current
marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury notes and bonds - conventional
|
|
|
7,762
|
|
|
|
7,762
|
|
|
|
|
|
U.S. government agency issues
|
|
|
3,002
|
|
|
|
|
|
|
|
3,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,922
|
|
|
$
|
11,918
|
|
|
$
|
4,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
(a)
|
Money market funds and U.S. treasury bills are included in cash and cash equivalents on the accompanying consolidated balance sheets and are valued at quoted market prices for identical instruments in active markets.
|
Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis
Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to our tangible property and equipment,
goodwill, and other intangible assets, which are
re-measured
when the derived fair value is below carrying value on our consolidated balance sheets. For these assets and liabilities, we do not periodically
adjust carrying value to fair value except in the event of impairment. When we determine that impairment has occurred, the carrying value of the asset is reduced to fair value and the difference is recorded to loss from impairment in our
consolidated statements of operations and comprehensive loss. During the three and nine months ended October 31, 2016, we recorded a $0.1 million loss on impairment of long-lived assets in our consolidated statements of operations and
comprehensive loss. This impairment was taken on an asset group classified as an asset held for sale on our consolidated balance sheet as of October 31, 2016, (as disclosed in Note 5,
Consolidated Balance Sheet Detail).
This
impairment was determined based on Level 2 inputs, as the valuation methodologies used to determine impairment considered a purchase and sale agreement from a potential buyer of the asset group.
We also have direct investments in privately-held companies accounted for under the cost method of accounting, of which we do not have
significant influence over their operating and financial activities. Management periodically assesses these investments for other-than-temporary impairment considering available information provided by the investees and any other readily available
market data. If we determine that an other-than-temporary impairment has occurred, we write down the investment to its fair value. For the three and nine months ended October 31, 2016, we determined there were no other-than-temporary
impairments on our cost method investments.
Available-For-Sale
Securities
We determine the appropriate classification of debt investment securities at the time of purchase and reevaluate such designation as of each
balance sheet date. Our investment portfolio consists of money market funds, U.S. treasury notes and bonds, and U.S. government agency notes and bonds as of October 31, 2016 and January 31, 2016. All highly liquid investments with an
original maturity of three months or less when purchased are considered to be cash equivalents. All cash equivalents are carried at cost, which approximates fair value. Our marketable securities are classified as
available-for-sale
and are reported at fair value with unrealized gains and losses, net of tax, reported in stockholders equity as a component of accumulated other comprehensive loss. The amortization
of premiums and accretion of discounts to maturity are computed under the effective interest method and are included in other (expenses) income, net, in our consolidated statements of operations and comprehensive loss. Interest on securities is
recorded as earned and is also included in other (expenses) income, net. Any realized gains or losses would be shown in the accompanying consolidated statements of operations and comprehensive loss in other (expenses) income, net. We provide fair
value measurement disclosures of
available-for-sale
securities in accordance with one of three levels of fair value measurement mentioned above.
11
The following is a summary of cash, cash equivalents and
available-for-sale
securities, including the cost basis, aggregate fair value and gross unrealized gains and losses, for short- and long-term marketable securities portfolio as of October 31, 2016 and
January 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
|
|
(Amounts in thousands)
|
|
October 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
24,763
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
24,763
|
|
Cash equivalents
|
|
|
2,721
|
|
|
|
|
|
|
|
|
|
|
|
2,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
27,484
|
|
|
|
|
|
|
|
|
|
|
|
27,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury notes and bonds - short-term
|
|
|
4,250
|
|
|
|
6
|
|
|
|
|
|
|
|
4,256
|
|
U.S. treasury notes and bonds - long-term
|
|
|
2,004
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
2,004
|
|
U.S, government agency issues - long-term
|
|
|
3,987
|
|
|
|
23
|
|
|
|
|
|
|
|
4,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and marketable securities
|
|
$
|
37,725
|
|
|
$
|
30
|
|
|
$
|
(1
|
)
|
|
$
|
37,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
55,079
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
55,079
|
|
Cash equivalents
|
|
|
3,654
|
|
|
|
|
|
|
|
|
|
|
|
3,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
58,733
|
|
|
|
|
|
|
|
|
|
|
|
58,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury notes and bonds - short-term
|
|
|
503
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
502
|
|
U.S. treasury notes and bonds - long-term
|
|
|
7,756
|
|
|
|
6
|
|
|
|
|
|
|
|
7,762
|
|
U.S, government agency issues - short-term
|
|
|
1,001
|
|
|
|
1
|
|
|
|
|
|
|
|
1,002
|
|
U.S, government agency issues - long-term
|
|
|
2,977
|
|
|
|
25
|
|
|
|
|
|
|
|
3,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and marketable securities
|
|
$
|
70,970
|
|
|
$
|
32
|
|
|
$
|
(1
|
)
|
|
$
|
71,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross realized gains and losses on sale of
available-for-sale
securities as of October 31, 2016 and January 31, 2016 were immaterial. For purposes of determining gross realized gains and losses, the
cost of securities is based on specific identification.
Contractual maturities of
available-for-sale
investments as of October 31, 2016 are as follows (amounts in thousands):
|
|
|
|
|
|
|
Estimated
Fair Value
|
|
Maturity of one year or less
|
|
$
|
4,256
|
|
Maturity between one and five years
|
|
|
6,014
|
|
|
|
|
|
|
Total
|
|
$
|
10,270
|
|
|
|
|
|
|
Cash, Cash Equivalents and Marketable Securities
Cash and cash equivalents consist primarily of highly liquid investments in money market mutual funds, government sponsored enterprise
obligations, treasury bills, commercial paper and other money market securities with remaining maturities at date of purchase of 90 days or less.
The fair value of cash, cash equivalents, restricted cash and marketable securities at October 31, 2016 and January 31, 2016 was
$37.9 million and $71.1 million, respectively.
The Company believes that existing funds and cash provided by future operating
activities are adequate to satisfy our working capital, potential acquisitions and capital expenditure requirements and other contractual obligations for the foreseeable future, including at least the next 12 months.
Restricted Cash
At times, we may be required to maintain cash held as collateral for performance obligations with our customers which we classify as restricted
cash on our consolidated balance sheets. As of October 31, 2016 and January 31, 2016 we had $0.1 million in restricted cash related to performance obligations.
12
4.
|
Acquisitions and Loss on Impairment
|
DCC Labs
On May 5, 2016 we acquired a 100% share of DCC Labs in exchange for an aggregate of $2.6 million in newly issued shares of SeaChange
common stock and $5.2 million in cash, net of cash acquired, resulting in a total net purchase price of $7.9 million. DCC Labs is a developer of
set-top
and multiscreen device software. Of the total
consideration, $0.5 million in cash and all of the stock is initially held in escrow as security for the indemnification obligations of the former DCC Labs owners to SeaChange under the purchase agreement. The stock consideration was determined
by dividing the total value of $2.6 million by the volume weighted average closing price of our common stock for the twenty trading days preceding the closing.
The acquisition of DCC Labs enables us to optimize the operations of our In Home business, which is our developer of deployed software
solutions including the SeaChange Nucleus home video gateway. In addition, the acquisition brings market-ready products, including an optimized television software stack for Europes Digital Video Broadcasting community and an HTML5 framework
for building future-proof user interfaces for CPE devices.
We accounted for the acquisition of DCC Labs as a business combination, which
requires us to record the assets acquired and liabilities assumed at fair value. The amount by which the purchase price exceeds the fair value of the net assets acquired is recorded as goodwill. We engaged an independent appraiser to assist
management in assessing the fair values of the tangible and intangible assets acquired and liabilities assumed and the amount of goodwill to be recognized as of the acquisition date. Assets acquired as a result of the acquisition include
receivables, prepaid expenses and property and equipment while liabilities assumed include accounts payable, other accrued expenses, deferred taxes and income taxes payable. The amounts recorded for these assets and liabilities are preliminary in
nature and are subject to adjustment as additional information is obtained about the facts and circumstances that existed as of the acquisition date. Adjustments to these amounts are allowed under U.S. GAAP during the measurement period, which is up
to one year from the acquisition date. The final determination of the fair values of the acquired assets and liabilities will be completed within the measurement period.
The allocation of purchase price was as follows (amounts in thousands):
|
|
|
|
|
Estimated Fair value of consideration:
|
|
|
|
|
Cash, net of cash acquired
|
|
$
|
5,243
|
|
Stock consideration
|
|
|
2,640
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
7,883
|
|
|
|
|
|
|
Estimated Fair value of assets acquired and liabilities assumed:
|
|
|
|
|
Current assets
|
|
|
826
|
|
Other long-term assets
|
|
|
116
|
|
Finite-life intangible assets
|
|
|
3,100
|
|
Goodwill
|
|
|
5,401
|
|
Current liabilities
|
|
|
(618
|
)
|
Other long-term liabilities
|
|
|
(942
|
)
|
|
|
|
|
|
Allocated purchase price
|
|
$
|
7,883
|
|
|
|
|
|
|
Acquired Goodwill
The preliminary purchase price allocation is subject to our final determination of fair value. We recorded the $5.4 million excess of the
purchase price over the fair value of the identified tangible and intangible assets as goodwill, primarily due to expected synergies between the combined companies and expanded market opportunities. The goodwill is not deductible for tax purposes.
Intangible Assets
In determining the fair value of the intangible assets, the Company considered, among other factors, the intended use of the assets and the
estimates of future performance of DCC Labs, based on analyses of historical financial performance. The fair values of identified intangible assets were calculated using an income-based approach based on estimates and assumptions provided by DCC
Labs and the Companys management.
13
The following table sets forth the components of the identified intangible assets associated with
the DCC Labs acquisition and their estimated useful lives:
|
|
|
|
|
|
|
|
|
|
|
Useful life
|
|
|
Fair Value
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
Tradename
|
|
|
5 years
|
|
|
$
|
200
|
|
Customer contracts
|
|
|
9 years
|
|
|
|
1,400
|
|
Non-compete
agreements
|
|
|
2 years
|
|
|
|
100
|
|
Existing technology
|
|
|
7 years
|
|
|
|
1,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,100
|
|
|
|
|
|
|
|
|
|
|
Measurement Period Adjustments
During the quarter ended October 31, 2016, we identified measurement period adjustments that impacted the estimated fair value of the DCC
Labs assets and liabilities assumed on May 5, 2016 as a result of new information obtained about the facts and circumstances that existed as of the acquisition date. The total measurement period adjustments recorded during the third quarter of
fiscal 2017 resulted in a decrease in receivables of $0.3 million and an increase in goodwill of $0.3 million. There was no impact to the consolidated statements of operations and comprehensive loss for the three and nine months ended
October 31, 2016. Further adjustments are expected through the end of the measurement period as third-party valuations are finalized.
Impact to Fiscal 2017 Financial Results
DCC Labs financial results have been included in our consolidated financial results only for the period from the May 5, 2016 acquisition
date through October 31, 2016. As a result, our consolidated financial results for the nine months ended October 31, 2016 do not reflect a full nine months of DCC Labs results. From the May 5, 2016 acquisition date through October 31, 2016,
DCC Labs generated revenue of $0.7 million and an operating loss of $2.0 million.
Acquisition-related Costs
In connection with the acquisition, we incurred approximately $0.2 million in acquisition-related costs, including legal, accounting and
other professional services for fiscal 2017. The acquisition costs were expensed as incurred and included in professional fees other, in our consolidated statements of operations and comprehensive loss for the period ended October 31,
2016.
TLL, LLC
On February 2, 2015, pursuant to an Agreement and Plan of Merger (the Merger Agreement), dated as of December 22, 2014,
we acquired 100% of the member interests in TLL, LLC (Timeline Labs), a privately-owned California-based
software-as-a-service
(SaaS) company.
We accounted for the acquisition of Timeline Labs as a business combination and the financial results of Timeline Labs have been included in
our consolidated financial statements as of the date of acquisition. Under the acquisition method of accounting, the purchase price was allocated to the acquired net tangible and intangible assets based upon their fair values as of February 2,
2015.
14
The allocation of the purchase price was as follows (amounts in thousands):
|
|
|
|
|
Fair value of consideration:
|
|
|
|
|
Cash, net of cash acquired
|
|
$
|
14,186
|
|
Closing stock consideration
|
|
|
3,019
|
|
Deferred stock consideration
|
|
|
4,959
|
|
Contingent consideration
|
|
|
475
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
22,639
|
|
|
|
|
|
|
Fair value of assets acquired and liabilities assumed:
|
|
|
|
|
Current assets
|
|
|
95
|
|
Other long-term assets
|
|
|
108
|
|
Finite-life intangible assets
|
|
|
6,720
|
|
Goodwill
|
|
|
15,787
|
|
Current liabilities
|
|
|
(71
|
)
|
|
|
|
|
|
Allocated purchase price
|
|
$
|
22,639
|
|
|
|
|
|
|
Fair Value of Consideration Transferred
Upon completion of the acquisition, the Company made cash consideration payments to the former members of Timeline Labs in the amount of
$14.2 million (Closing Cash Consideration). The Closing Cash Consideration included $1.4 million deposited in escrow to secure certain indemnification obligations of the former members of Timeline Labs under the Merger
Agreement. Also upon completion of the acquisition, the Company issued 344,055 shares of common stock to the former members of Timeline Labs and deposited 173,265 shares of common stock into escrow.
On August 3, 2015, we issued 260,537 shares of our common stock with a value of $1.8 million to the former members of Timeline Labs,
in satisfaction of the
six-month
deferred stock consideration obligation pursuant to the Merger Agreement. In satisfaction of the twelve-month deferred stock consideration obligation pursuant to the Merger
Agreement, on February 2, 2016 we issued 542,274 shares of our common stock with a value of $3.2 million and in May 2016, pursuant to an adjustment mechanism based on stock price provided for in the Merger Agreement with respect to
deferred stock consideration issuances, we issued an additional 70,473 shares of our common stock with a value of $0.2 million.
Contingent Consideration
The former interest holders of Timeline Labs were eligible to receive
earn-out
compensation, consisting
of shares of our common stock, if defined performance criteria were achieved for fiscal 2016 and 2017. We recorded a liability of $3.2 million in February 2015 in our consolidated balance sheets that represented the fair value of the estimated
shares at full achievement of the defined performance criteria on the date of acquisition. As of January 31, 2016, the Company determined that the defined performance criteria would not be achieved and the liability was reduced to zero with a
$0.4 million reversal of liability credited to loss on impairment of TLL, LLC net assets in our consolidated statements of operations and comprehensive loss for the fiscal year ended January 31, 2016.
Intangible Assets
In
determining the fair value of the intangible assets, the Company considered, among other factors, the intended use of the assets, the estimates of future performance of Timeline Labs products and analyses of historical financial performance.
The fair values of identified intangible assets were calculated using an income-based approach based on estimates and assumptions provided by Timeline Labs and the Companys management.
15
The following table sets forth the components of the identified intangible assets associated with
the Timeline Labs acquisition and their estimated useful lives:
|
|
|
|
|
|
|
|
|
|
|
Useful life
|
|
|
Fair Value
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
Tradename
|
|
|
7 years
|
|
|
$
|
620
|
|
Customer contracts
|
|
|
7 years
|
|
|
|
4,760
|
|
Non-compete
agreements
|
|
|
2 years
|
|
|
|
170
|
|
Existing technology
|
|
|
5 years
|
|
|
|
1,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,720
|
|
|
|
|
|
|
|
|
|
|
Acquired Goodwill
We finalized the purchase price allocation in January 2016. We recorded the $15.8 million excess of the purchase price over the fair value
of the identified tangible and intangible assets as goodwill, primarily due to expected synergies between the combined companies and expanded market opportunities. The goodwill was deductible for tax purposes.
Acquisition-related Costs
In connection with the acquisition, we incurred approximately $0.2 million in acquisition-related costs, including legal, accounting and
other professional services for fiscal 2016. The acquisition costs were expensed as incurred and included in professional fees other, in our consolidated statements of operations and comprehensive loss for the fiscal year ended
January 31, 2016.
Loss on Impairment of Assets
In January 2016, our Board of Directors authorized a restructuring plan to wind down the Timeline Labs operations, as previously reported in a
Current Report on Form
8-K
filed with the SEC on February 17, 2016. Based on the decision to enter into the restructuring plan and the plans impact on the projected future cash flows of the Timeline
Labs operations, we determined that the carrying amount of all long-term assets that resulted from the February 2015 acquisition had exceeded their fair value as of January 31, 2016. As a result, these long-term assets were deemed fully
impaired and we recorded the $21.9 million net book value of these long-term assets as a component of loss on impairment of TLL, LLC net assets in our consolidated statements of operations and comprehensive loss for the fiscal year ended
January 31, 2016. Additionally, we reduced the contingent consideration liability associated with the Timeline Labs acquisition to zero, as we determined that the defined performance criteria would not be achieved, and credited the reversal of
the liability of $0.4 million to loss on impairment of TLL, LLC net assets in our consolidated statements of operations and comprehensive loss for the fiscal year ended January 31, 2016.
In addition, we incurred $0.6 million in severance and other restructuring charges during fiscal 2017 related to cost-saving actions taken
with respect to the Timeline Labs business.
5.
|
Consolidated Balance Sheet Detail
|
Inventories, net
Inventories consist primarily of hardware and related component parts and are stated at the lower of cost (on a
first-in,
first-out
basis) or market. Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
October 31,
2016
|
|
|
January 31,
2016
|
|
|
|
(Amounts in thousands)
|
|
Components and assemblies
|
|
$
|
473
|
|
|
$
|
1,223
|
|
Finished products
|
|
|
525
|
|
|
|
459
|
|
|
|
|
|
|
|
|
|
|
Total inventories, net
|
|
$
|
998
|
|
|
$
|
1,682
|
|
|
|
|
|
|
|
|
|
|
16
Asset Held for Sale
In fiscal 2012 as a result of the restructuring of our video
on-demand
server product lines and
divestiture of a portion of our broadcast servers and storage business, we determined we would no longer utilize our facility in Greenville, New Hampshire as an active operation. As a result, we placed the asset group on the market for sale. We
classified the asset group as held for sale beginning in fiscal 2012 because at the time, the potential sale of this asset group met all the criteria for an asset held for sale. The asset group continued to be classified as held for sale until
fiscal 2014 when management concluded that the sale of the asset group would take longer than they first expected due to the location of the property and the overall market conditions. We felt that the asset group no longer met the criteria for held
for sale accounting because the sale of the building was not imminent. Accordingly, in the third quarter of fiscal 2014 we reclassified $0.5 million, which represented the fair value of the asset group at the date of the subsequent decision not
to sell, as held and used and began depreciating it over its remaining life.
During the third quarter of fiscal 2017, we began actively
marketing the asset group for sale and identified a potential buyer. Accordingly, we determined that the sale of the asset group is probable by the end of the fourth quarter of fiscal 2017. We determined that the asset group meets all the criteria
of held for sale accounting and have classified the asset group as held for sale on our consolidated balance sheets beginning in the third quarter of fiscal 2017. We originally placed the asset group on the market in August 2016 for
$0.3 million, which was the net book value of the asset group at that time. To be more competitive in the real estate market in which the property is located, we reduced the selling price in September 2016 to $0.2 million. As a result, we
recorded a loss on impairment of long-lived assets of $0.1 million in our consolidated statements of operations and comprehensive loss during the three and nine months ended October 31, 2016.
Property and equipment, net
Property and equipment, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
Useful
Life (Years)
|
|
|
As of
|
|
|
|
|
October 31,
2016
|
|
|
January 31,
2016
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
Land
|
|
|
|
|
|
$
|
2,780
|
|
|
$
|
2,880
|
|
Buildings
|
|
|
20
|
|
|
|
11,654
|
|
|
|
11,908
|
|
Office furniture and equipment
|
|
|
5
|
|
|
|
1,111
|
|
|
|
1,099
|
|
Computer equipment, software and demonstration equipment
|
|
|
3
|
|
|
|
18,472
|
|
|
|
18,639
|
|
Service and spare components
|
|
|
5
|
|
|
|
1,158
|
|
|
|
1,158
|
|
Leasehold improvements
|
|
|
1-7
|
|
|
|
1,091
|
|
|
|
1,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,266
|
|
|
|
36,771
|
|
Less - Accumulated depreciation and amortization
|
|
|
|
|
|
|
(24,177
|
)
|
|
|
(22,642
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
|
|
|
|
$
|
12,089
|
|
|
$
|
14,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Depreciation and amortization expense on property and equipment, net was $0.7 million and
$2.3 million for the three and nine months ended October 31, 2016, respectively, and $0.9 million and $2.6 million for the three and nine months ended October 31, 2015, respectively.
Other accrued expenses
Other accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
October 31,
2016
|
|
|
January 31,
2016
|
|
|
|
(Amounts in thousands)
|
|
Accrued compensation and commissions
|
|
$
|
1,473
|
|
|
$
|
1,676
|
|
Accrued bonuses
|
|
|
2,062
|
|
|
|
2,902
|
|
Accrued severance
|
|
|
420
|
|
|
|
47
|
|
Accrued restructuring
|
|
|
1,186
|
|
|
|
|
|
Employee benefits
|
|
|
759
|
|
|
|
1,484
|
|
Accrued provision for contract loss
|
|
|
3,358
|
|
|
|
6,497
|
|
Accrued other
|
|
|
3,665
|
|
|
|
4,808
|
|
|
|
|
|
|
|
|
|
|
Total other accrued expenses
|
|
$
|
12,923
|
|
|
$
|
17,414
|
|
|
|
|
|
|
|
|
|
|
6.
|
Goodwill and Intangible Assets
|
Goodwill
Goodwill represents the difference between the purchase price and the estimated fair value of identifiable assets acquired and liabilities
assumed. We are required to perform impairment tests related to our goodwill annually, which we perform during the third quarter of each fiscal year, or when we identify certain triggering events or circumstances that would more likely than not
reduce the estimated fair value of the goodwill of the Company below its carrying amount. Changes in the carrying amount of goodwill for the nine months ended October 31, 2016 were as follows (amounts in thousands):
|
|
|
|
|
Balance as of February 1, 2016
|
|
|
|
|
Goodwill
|
|
$
|
55,962
|
|
Accumulated impairment losses
|
|
|
(15,787
|
)
|
|
|
|
|
|
|
|
|
40,175
|
|
Acquisition of DCC Labs
|
|
|
5,401
|
|
Cumulative translation adjustment
|
|
|
113
|
|
|
|
|
|
|
Balance as of October 31, 2016
|
|
|
|
|
Goodwill
|
|
|
61,476
|
|
Accumulated impairment losses
|
|
|
(15,787
|
)
|
|
|
|
|
|
|
|
$
|
45,689
|
|
|
|
|
|
|
Preliminary goodwill is reported at $5.4 million as of October 31, 2016, related to the acquisition of
DCC Labs based on the preliminary allocation of the estimated purchase price. We will continue to evaluate certain assets, liabilities and tax estimates that are subject to change within the measurement period (up to one year from the acquisition
date).
In the second quarter of fiscal 2017, triggering events prompted us to perform step one of the goodwill impairment test. The
triggering events included; a sustained decrease in our stock price during the period, the withdrawal of the permanent reinvestment assertion on earnings generated by our Irish operations (see Note 12,
Income Taxes
to
our consolidated financial statements for more information) and a decline in actual revenue for the quarter compared to projected amounts, which was previously reported in a Current Report on Form 8-K furnished to the SEC on August 23, 2016.
The outcome of that preliminary step one analysis revealed that as of July 31, 2016, the fair value of the net assets exceeded its carrying value by a range of $15.4 million to $25.0 million, or 15.0% to 24.4% of the carrying value of our net
assets.
In the third quarter of fiscal 2017, we finalized our step one analysis of the goodwill impairment test. Our forecast indicated
that the estimated fair value of net assets may be less than the carrying value which is a potential indicator of impairment. As such, we are required to perform step two of the impairment test during which we compare the implied fair value of our
goodwill to its carrying value. We currently continue to work through various restructuring actions and execute on other strategic plans which has not enabled us to complete the step two testing at this time. We expect to complete the goodwill
impairment testing of our reporting unit during the fourth quarter of fiscal 2017. To the extent that the finalization of this assessment of goodwill requires recognition of an impairment loss, such adjustment would be recorded in the fourth quarter
of fiscal 2017. We have estimated the range of impairment loss to be between $0 and $45.7 million and have not recognized an impairment loss in the third quarter of fiscal 2017. See
Critical Accounting Policies and Significant Judgment
and Estimates – Goodwill,
in Part I, Item 2 of this Form 10Q for more information on the impairment testing.
18
Intangible Assets
Intangible assets, net, consisted of the following at October 31, 2016 and January 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2016
|
|
|
As of January 31, 2016
|
|
|
|
Weighted average
remaining life
(Years)
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
|
(Amounts in thousands)
|
|
Finite-life intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer contracts
|
|
4.3
|
|
$
|
31,454
|
|
|
$
|
(27,797
|
)
|
|
$
|
3,657
|
|
|
$
|
29,956
|
|
|
$
|
(26,284
|
)
|
|
$
|
3,672
|
|
Non-compete
agreements
|
|
1.8
|
|
|
2,483
|
|
|
|
(2,410
|
)
|
|
|
73
|
|
|
|
2,365
|
|
|
|
(2,365
|
)
|
|
|
|
|
Completed technology
|
|
6.0
|
|
|
11,509
|
|
|
|
(10,029
|
)
|
|
|
1,480
|
|
|
|
10,075
|
|
|
|
(9,621
|
)
|
|
|
454
|
|
Trademarks, patents and other
|
|
4.8
|
|
|
7,267
|
|
|
|
(7,092
|
)
|
|
|
175
|
|
|
|
7,068
|
|
|
|
(7,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total finite-life intangible assets
|
|
4.7
|
|
$
|
52,713
|
|
|
$
|
(47,328
|
)
|
|
$
|
5,385
|
|
|
$
|
49,464
|
|
|
$
|
(45,338
|
)
|
|
$
|
4,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2016, the estimated future amortization expense for our finite-life intangible assets
is as follows (amounts in thousands):
|
|
|
|
|
Fiscal Year Ended January 31,
|
|
Estimated
Amortization
Expense
|
|
2017 (for the remaining three months)
|
|
$
|
635
|
|
2018
|
|
|
1,721
|
|
2019
|
|
|
1,038
|
|
2020
|
|
|
524
|
|
2021
|
|
|
389
|
|
2022 and thereafter
|
|
|
1,078
|
|
|
|
|
|
|
Total
|
|
$
|
5,385
|
|
|
|
|
|
|
7.
|
Commitments and Contingencies
|
Indemnification and Warranties
We provide indemnification, to the extent permitted by law, to our officers, directors, employees and agents for liabilities arising from
certain events or occurrences while the officer, director, employee or agent is, or was, serving at our request in such capacity. With respect to acquisitions, we provide indemnification to, or assume indemnification obligations for, the current and
former directors, officers and employees of the acquired companies in accordance with the acquired companies governing documents. As a matter of practice, we have maintained directors and officers liability insurance including
coverage for directors and officers of acquired companies.
We enter into agreements in the ordinary course of business with customers,
resellers, distributors, integrators and suppliers. Most of these agreements require us to defend and/or indemnify the other party against intellectual property infringement claims brought by a third party with respect to our products. From time to
time, we also indemnify customers and business partners for damages, losses and liabilities they may suffer or incur relating to personal injury, personal property damage, product liability, and environmental claims relating to the use of our
products and services or resulting from the acts or omissions of us, our employees, authorized agents or subcontractors. From time to time we have received requests from customers for indemnification of patent litigation claims. Management cannot
reasonably estimate any potential losses, but these claims could result in material liability for us. There are no current pending legal proceedings, in the opinion of management that would have a material adverse effect on our financial position,
results from operations and cash flows. There is no assurance that future legal proceedings arising from ordinary course of business or otherwise, will not have a material adverse effect on our financial position, results from operations or cash
flows.
We warrant that our products, including software products, will substantially perform in accordance with our standard published
specifications in effect at the time of delivery. In addition, we provide maintenance support to our customers and therefore allocate a portion of the product purchase price to the initial warranty period and recognize revenue on a straight line
basis over that warranty period related to both the warranty obligation and the maintenance support agreement. When we enter into arrangements that include revenue for extended warranties beyond the standard duration, the revenue is deferred and
recognized on a straight line basis over the contract period. Related costs are expensed as incurred.
19
Revolving Line of Credit/Demand Note Payable
We had a letter agreement with JP Morgan Chase Bank, N.A. (JP Morgan) for a demand discretionary line of credit and a Demand
Promissory Note in the aggregate amount of $20.0 million, which expired on August 31, 2016 with no outstanding balance. This line of credit and Demand Promissory Note was not renewed.
8.
|
Severance and Other Restructuring Costs
|
Restructuring Costs
During the nine months ended October 31, 2016, we incurred restructuring charges of $4.6 million primarily from employee-related
benefits for terminated employees and costs to close facilities.
The following table shows the activity in accrued restructuring reported
as a component of other accrued expenses on the consolidated balance sheet as of October 31, 2016 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee-
Related
Benefits
|
|
|
Closure of
Leased
Facilities
|
|
|
Other
Restructuring
|
|
|
Total
|
|
Accrual balance as of January 31, 2016
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Restructuring charges incurred
|
|
|
3,868
|
|
|
|
470
|
|
|
|
250
|
|
|
|
4,588
|
|
Cash payments
|
|
|
(2,946
|
)
|
|
|
(274
|
)
|
|
|
(182
|
)
|
|
|
(3,402
|
)
|
Other charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual balance as of October 31, 2016
|
|
$
|
922
|
|
|
$
|
196
|
|
|
$
|
68
|
|
|
$
|
1,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the third quarter of fiscal 2017, we implemented a restructuring program (Fiscal 2017
Restructuring Plan) with the purpose of reducing costs and assisting in restoring SeaChange to profitability and positive cash flow. The total estimated restructuring costs associated with the Fiscal 2017 Restructuring Plan are anticipated to
be approximately $3 million and will be recorded in severance and other restructuring costs in our consolidated statements of operations and comprehensive loss as they are incurred. We recorded $2.1 million of restructuring expense in connection
with this plan during the three and nine months ended October 31, 2016, which was primarily made up of employee related costs, and we expect to incur a majority of the estimated remaining amount through the first quarter of fiscal 2018. Any changes
to the estimate of executing the Fiscal 2017 Restructuring Plan will be reflected in our future results of operations.
During the second
quarter of fiscal 2017, we restructured our operations in connection with the acquisition of DCC Labs. This restructuring resulted in a workforce reduction within our In Home engineering and services organization and in the closing of our facility
in Portland, Oregon. We incurred charges totaling $1.9 million in severance and other restructuring costs during fiscal 2017 related to the acquisition of DCC Labs. Once we complete our integration plan, any further reduction in workforce may
result in additional restructuring charges.
As a result of restructuring activities relating to our Timeline Labs operations in fiscal
2017, we incurred $0.6 million of charges, which include $0.5 million in severance to former Timeline Labs employees and $0.1 million in other restructuring charges relating to our remaining lease obligation of our Timeline Labs
facilities in San Francisco and Santa Monica, California.
Severance Costs
During the nine months ended October 31, 2016, we incurred severance charges of $1.4 million primarily from the departure of our
former Chief Executive Officer (CEO) and Chief Financial Officer (CFO) during the first half of fiscal 2017 as well as the termination of 12 other former employees.
Effective April 6, 2016, we terminated the employment of Jay Samit, our former CEO. In connection with his termination, Mr. Samit and SeaChange
entered into a Separation Agreement and Release of Claims (the CEO Separation Agreement). Under the terms of the CEO Separation Agreement and consistent with our pre-existing obligations to Mr. Samit in connection with a termination
without cause, we incurred a charge of $1.0 million in the first quarter of fiscal 2017, which included $0.2 million for satisfaction of his remaining fiscal 2016 and 2017 annual bonuses and $0.8 million in severance payable in twelve equal monthly
installments which will be completed in the first quarter of fiscal 2018. In addition, on July 6, 2016, Anthony Dias resigned as CFO of SeaChange, though he continued as an
20
employee until July 31, 2016. In connection with his resignation, Mr. Dias and SeaChange entered into an Employment Separation Agreement and Voluntary Release, dated July 6, 2016 (the CFO
Separation Agreement). Under the terms of the CFO Separation Agreement, we incurred a charge of $0.2 million, which included his fiscal 2017 pro-rated bonus (paid in fiscal 2018) and six months base salary as severance payable in twelve
equal semi-monthly installments, which will be completed by the end of fiscal 2017.
2011 Compensation and Incentive Plan
In July 2011, our stockholders approved the adoption of our 2011 Compensation and Incentive Plan (the 2011 Plan). Under the 2011
Plan, as amended in July 2013, the number of shares of common stock authorized for grant is equal to 5,300,000 shares plus the number of shares that expired, terminated, surrendered or forfeited awards subsequent to July 20, 2011 under the Amended
and Restated 2005 Equity Compensation and Incentive Plan (the 2005 Plan). Following approval of the 2011 Plan, we terminated the 2005 Plan. The 2011 Plan provides for the grant of incentive stock options, nonqualified stock options,
restricted stock, restricted stock units (RSUs), deferred stock units (DSUs) and other equity based non-stock option awards as determined by the plan administrator to officers, employees, consultants, and directors of the
Company. On July 13, 2016, our stockholders approved an amendment to the 2011 Plan which:
|
|
|
Approved the removal of minimum vesting periods for stock option, RSU and other stock-based awards, but excluding restricted stock, under the 2011 Plan; and
|
|
|
|
Approved the material terms of the performance goals of the 2011 Plan under which
tax-deductible
compensation may be paid for purposes of rules under the Internal Revenue Code of
1986, as amended, including the business criteria on which performance goals may be based.
|
Effective February 1, 2014,
SeaChange gave its
non-employee
members of the Board of Directors the option to receive DSUs in lieu of RSUs, beginning with the annual grant for fiscal 2015. The number of units subject to the DSUs is
determined as of the grant date and shall fully vest one year from the grant date. The shares underlying the DSUs are not vested and issued until the earlier of the director ceasing to be a member of the Board of Directors (provided such time is
subsequent to the first day of the succeeding fiscal year) or immediately prior to a change in control. Commencing with fiscal 2016, we changed the policy regarding the timing of the equity grant from the first day of the applicable fiscal year to
the date of our annual meeting of stockholders. To facilitate the transition, a partial year grant was made to our
non-employee
directors, effective February 1, 2015, and a full year grant was made to our
non-employee
directors, effective July 15, 2015.
We may satisfy awards upon the exercise of
stock options or the vesting of stock units with newly issued shares or treasury shares. The Board of Directors is responsible for the administration of the 2011 Plan and determining the terms of each award, award exercise price, the number of
shares for which each award is granted and the rate at which each award vests. In certain instances, the Board of Directors may elect to modify the terms of an award. As of October 31, 2016, there were 1,080,312 shares available for future grant
under the 2011 Plan.
Option awards may be granted to employees at an exercise price per share of not less than 100% of the fair market
value per common share on the date of the grant. Stock units may be granted to any officer, employee, director, or consultant at a purchase price per share as determined by the Board of Directors. Option awards granted under the 2011 Plan generally
vest over a period of one to four years and expire ten years from the date of the grant.
In fiscal 2016, the Board of Directors developed
a new Long-Term Incentive (LTI) Program under which the named executive officers and other key employees of the Company will receive long-term equity-based incentive awards, which are intended to align the interests of our named
executive officers and other key employees with the long-term interests of our stockholders and to emphasize and reinforce our focus on team success. Long-term equity-based incentive compensation awards are made in the form of stock options, RSUs
and performance stock units (PSUs) subject to vesting based in part on the extent to which employment continues for three years.
We have granted market-based options to certain newly appointed officers. These stock options have an exercise price equal to our closing stock
price on the date of grant and will vest in approximately equal increments based upon the closing price of SeaChanges common stock. We record the fair value of these stock options using the Monte Carlo simulation model, since the stock option
vesting is variable depending on the closing price of our traded common stock. The model simulated the daily trading price of the market-based stock options expected terms to determine if the vesting conditions would be triggered during the
term. Effective April 6, 2016, Ed Terino, who previously served as our Chief Operating Officer (COO), was appointed Chief Executive Officer (CEO) of SeaChange and was granted 600,000 market-based options, bringing the
total of his market-based options, when added to the 200,000 market-based options
21
he received upon hire as COO in June 2015, to 800,000 market-based options. The fair value of these stock options was estimated to be $2.1 million. As of October 31, 2016,
$1.1 million remained unamortized on these market-based stock options, which will be expensed over the next 2.5 years, the remaining weighted average amortization period.
2015 Employee Stock Purchase Plan
In July 2015 we adopted the 2015 Employee Stock Purchase Plan (the ESPP). The purpose of the ESPP is to provide eligible employees,
including executive officers of SeaChange, with the opportunity to purchase shares of our common stock at a discount through accumulated payroll deductions of up to 15%, but not less than one percent of their eligible compensation, subject to any
plan limitations. Offering periods typically commence on October 1
st
and April 1
st
and end on March 31
st
and September 30
th
with the last trading day being the exercise date for the offering period. On each purchase date, eligible employees will
purchase our stock at a price per share equal to 85% of the closing price of our common stock on the exercise date, but no less than par value. The maximum number of shares of our common stock which will be authorized for sale under the ESPP is
1,150,000 shares. Stock-based compensation expense related to the ESPP was not significant for the three and nine months ended October 31, 2016.
10.
|
Accumulated Other Comprehensive Loss
|
The following shows the changes in the components
of accumulated other comprehensive loss for the nine months ended October 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
Adjustment
|
|
|
Changes in
Fair Value of
Available-
for-Sale
Investments
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
Balance at January 31, 2016
|
|
$
|
(6,644
|
)
|
|
$
|
31
|
|
|
$
|
(6,613
|
)
|
Other comprehensive loss
|
|
|
(316
|
)
|
|
|
(2
|
)
|
|
|
(318
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2016
|
|
$
|
(6,960
|
)
|
|
$
|
29
|
|
|
$
|
(6,931
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on securities
available-for-sale
are not material for the periods presented.
Comprehensive loss consists of our
net loss and other comprehensive loss, which includes foreign currency translation adjustments and changes in unrealized gains and losses on marketable securities
available-for-sale.
For purposes of comprehensive loss disclosures, we do not record tax expense or benefits for the net changes in the foreign currency translation
adjustments.
11.
|
Segment Information, Significant Customers and Geographic Information
|
Segment
Information
Our operations are organized into one reportable segment. Operating segments are defined as components of an
enterprise evaluated regularly by the Companys chief operating decision maker in deciding how to allocate resources and assess performance. Our reportable segment was determined based upon the nature of the products offered to customers, the
market characteristics of each operating segment and the Companys management structure.
Significant Customers
The following summarizes revenues by significant customer where such revenue exceeded 10% of total revenues for the indicated period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
October 31,
|
|
|
Nine Months Ended
October 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Customer A
|
|
|
33
|
%
|
|
|
30
|
%
|
|
|
31
|
%
|
|
|
25
|
%
|
Customer B
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
12
|
%
|
22
Geographic Information
The following table summarizes revenues by customers geographic locations for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31,
|
|
|
Nine Months Ended October 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
(Amounts in thousands, except percentages)
|
|
Revenues by customers geographic locations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America(1)
|
|
$
|
9,116
|
|
|
|
45
|
%
|
|
$
|
14,659
|
|
|
|
51
|
%
|
|
$
|
28,306
|
|
|
|
47
|
%
|
|
$
|
44,447
|
|
|
|
56
|
%
|
Europe and Middle East
|
|
|
8,518
|
|
|
|
43
|
%
|
|
|
12,322
|
|
|
|
43
|
%
|
|
|
26,098
|
|
|
|
44
|
%
|
|
|
29,979
|
|
|
|
37
|
%
|
Latin America
|
|
|
1,334
|
|
|
|
7
|
%
|
|
|
1,433
|
|
|
|
5
|
%
|
|
|
3,785
|
|
|
|
6
|
%
|
|
|
3,884
|
|
|
|
5
|
%
|
Asia Pacific
|
|
|
993
|
|
|
|
5
|
%
|
|
|
333
|
|
|
|
1
|
%
|
|
|
1,794
|
|
|
|
3
|
%
|
|
|
1,485
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,961
|
|
|
|
|
|
|
$
|
28,747
|
|
|
|
|
|
|
$
|
59,983
|
|
|
|
|
|
|
$
|
79,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes total revenues for the United States for the periods shown as follows (amounts in thousands, except percentage data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
October 31,
|
|
|
Nine Months Ended
October 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
U.S. Revenue
|
|
$
|
6,905
|
|
|
$
|
11,880
|
|
|
$
|
22,040
|
|
|
$
|
35,609
|
|
% of total revenues
|
|
|
34.6
|
%
|
|
|
41.3
|
%
|
|
|
36.7
|
%
|
|
|
44.6
|
%
|
We recorded an income tax benefit of $0.4 million for the three
months ended October 31, 2016 and a tax provision of $14.4 million for the nine months ended October 31, 2016. The tax benefit for the three-month period includes the reversal of tax reserves for uncertain tax positions due to the
expiration of the Irish statute of limitations of $0.4 million. The tax provision for the nine-month period is primarily due to deferred income tax expense of $14.7 million related to the change in assertion regarding the undistributed
foreign earnings of certain of our foreign subsidiaries. Our effective tax rate in fiscal 2017 and in future periods may fluctuate on a quarterly basis as a result of changes in our jurisdictional forecasts where losses cannot be benefitted due to
the existence of valuation allowances on our deferred tax assets, changes in actual results versus our estimates, or changes in tax laws, regulations, accounting principles, or interpretations thereof.
Our foreign subsidiaries generate earnings that are not subject to U.S. income taxes so long as they are permanently reinvested in our
operations outside of the U.S. Pursuant to Accounting Standard Codification Topic
No. 740-30,
Income Taxes Other Considerations or Special Areas,
undistributed earnings of
foreign subsidiaries that are no longer permanently reinvested would become subject to deferred income taxes under U.S. tax law. Prior to the second quarter of fiscal 2017, we asserted that the undistributed earnings of all our foreign subsidiaries
were permanently reinvested.
In the second quarter of fiscal 2017, following a review of our operations, liquidity and funding, and
investment in our product roadmap, we determined that the ability to access certain amounts of foreign earnings would provide greater flexibility to meet the Companys working capital needs. Accordingly, in the second quarter of fiscal 2017, we
withdrew the permanent reinvestment assertion on $58.6 million of earnings generated by our Irish operations through July 2016. We recorded a deferred tax liability of $14.7 million related to the foreign income taxes on $58.6 million
of undistributed earnings.
There is no certainty as to the timing of when such foreign earnings will be distributed to the United States
in whole or in part. Further, when the foreign earnings are distributed to the United States, we anticipate that a substantial portion of the resulting U.S. income taxes would be reduced by existing tax attributes.
We have not provided for U.S. federal or foreign income taxes on $4.8 million of our
non-U.S.
subsidiaries undistributed earnings as of October 31, 2016. The $4.8 million of undistributed foreign earnings have been reinvested in our foreign operations, as we have determined that these earnings are necessary to support our
planned ongoing investments in our foreign operations, and as a result, these earnings remain indefinitely reinvested in those operations.
23
In making this decision, we considered cash needs for: investing in our existing businesses,
potential acquisitions and capital transactions.
The Company reviews all available evidence to evaluate the recovery of deferred tax
assets, including the recent history of losses in all tax jurisdictions, as well as its ability to generate income in future periods. As of October 31, 2016, due to the uncertainty related to the ultimate use of certain deferred income tax
assets, the Company has recorded a valuation allowance on certain of its deferred assets.
We file income tax returns in the U.S. federal
jurisdiction, various state jurisdictions, and various foreign jurisdictions. We have closed out an audit with the Internal Revenue Service (IRS) through fiscal 2013, however, the taxing authorities will still have the ability to review
the propriety of certain tax attributes created in closed years if such tax attributes are utilized in an open tax year, such as our federal research and development credit carryovers.
Net loss per share is presented in accordance with authoritative
guidance which requires the presentation of basic and diluted earnings per share. Basic earnings (loss) per share is computed by dividing earnings (loss) available to common shareholders by the weighted-average shares of
common stock outstanding during the period. For the purposes of calculating diluted earnings per share, the denominator includes both the weighted average number of shares of common stock outstanding during the period and the weighted average number
of shares of potential dilutive shares of common stock, such as stock awards, calculated using the treasury stock method. Basic and diluted net loss per share was the same for all the periods presented as the impact of potential dilutive shares
outstanding was anti-dilutive.
The following table sets forth our computation of basic and diluted net loss per common share (amounts in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
October 31,
|
|
|
Nine Months Ended
October 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net loss
|
|
$
|
(8,082
|
)
|
|
$
|
(10,565
|
)
|
|
$
|
(43,873
|
)
|
|
$
|
(25,417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing net loss per share - basic and diluted
|
|
|
35,186
|
|
|
|
33,636
|
|
|
|
34,889
|
|
|
|
33,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.23
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(1.26
|
)
|
|
$
|
(0.76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.23
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(1.26
|
)
|
|
$
|
(0.76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The number of common shares used in the computation of diluted net loss per share for the three and nine
months ended October 31, 2016 and 2015 does not include the effect of the following potentially outstanding common shares because the effect would have been anti-dilutive (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
October 31,
|
|
|
Nine Months Ended
October 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Stock options
|
|
|
1,756
|
|
|
|
1,791
|
|
|
|
1,443
|
|
|
|
1,503
|
|
Restricted stock units
|
|
|
845
|
|
|
|
169
|
|
|
|
787
|
|
|
|
176
|
|
Deferred stock units
|
|
|
28
|
|
|
|
30
|
|
|
|
55
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,629
|
|
|
|
1,990
|
|
|
|
2,285
|
|
|
|
1,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.
|
Recent Accounting Standard Updates
|
We consider the applicability and impact of all
ASUs. Updates not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations.
24
Recently Issued Accounting Standard Updates Not Yet Adopted
Revenue from Contracts with Customers (Topic 606)
In May 2014, the Financial Accounting Standards Board (FASB) issued ASU
2014-09,
Revenue from Contracts with Customers (Topic 606),
to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and the International Financial Reporting Standards. This guidance
supersedes previously issued guidance on revenue recognition and gives a five step process an entity should follow so that the entity recognizes revenue that depicts the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB deferred the effective date of this guidance to annual reporting periods beginning after December 15, 2017, which would
be our fiscal 2019 reporting period. It must be applied either retrospectively during each prior reporting period presented or retrospectively with the cumulative effect of initially applying this guidance recognized at the date of the initial
application. Early adoption is permitted to the original effective date of December 15, 2016 (including interim reporting periods within those periods). We are currently evaluating what impact the adoption of this update will have on our
consolidated financial statements.
In March 2016, the FASB issued ASU
2016-08,
Revenue
from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net).
ASU
2016-08
is intended to improve the operability and understandability of the
implementation guidance on principal versus agent considerations. The effective date for ASU
2016-08
is the same as the effective date for ASU
2014-09.
We are currently
evaluating what impact the adoption of this update will have on our consolidated financial statements.
In April 2016, the FASB issued ASU
2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.
ASU
2016-10
provides clarification on two
aspects of Topic 606: identifying performance obligations and the licensing implementation guidance. Specifically, the amendments reduce the cost and complexity of identifying promised goods or services and improve the guidance for determining
whether promises are separately identifiable. The effective date of ASU
2016-10
is the same as the effective date for ASU
2014-09.
We are currently evaluating what
impact the adoption of this update will have on our consolidated financial statements.
In May 2016, the FASB issued ASU
2016-12,
Revenue from Contracts with Customers (Topic 600): Narrow-Scope Improvements and Practical Expedients.
ASU 2016 clarifies aspects of ASU
2014-09,
including clarifying noncash consideration, and provides a practical expedient for reflecting contract modifications at transition. The effective date of ASU
2016-12
is the same as the effective date of ASU
2014-09.
We are currently evaluating what impact the adoption of this update will have on our consolidated financial statements.
Leases
In February 2016,
the FASB issued ASU
2016-02,
Leases (Topic 842).
ASU
2016-02
requires a lessee to recognize a
right-of-use
asset and a lease liability for operating leases with terms over twelve months, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a
lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. It also requires lessees to classify leases as either finance or operating leases based on the
principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis
over the term of the lease. ASU
2016-02
is effective for us in the first quarter of fiscal 2020. Early adoption is permitted. We are currently evaluating what impact the adoption of this update will have on
our consolidated financial statements.
Stock Compensation
In March 2016, the FASB issued ASU
2016-09,
Compensation Stock Compensation (Topic
718): Improvements to Employee Share-Based Payment Accounting.
ASU
2016-09
intended to simplify several aspects of the accounting for share-based payment transactions, including the accounting for
income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statements of cash flows. ASU
2016-09
is effective for us in the first quarter of fiscal 2018. Early
adoption is permitted. We are currently evaluating what impact the adoption of this update will have on our consolidated financial statements.
Cash Flow Statement
In
August 2016, the FASB issued ASU
2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.
ASU
2016-15
provides guidance on the classification of certain cash receipts and payments in the statement of cash flows where diversity in practice exists. The guidance is effective for interim and
25
annual periods beginning in our first quarter of fiscal 2018, and early adoption is permitted. ASU
2016-15
must be applied retrospectively to all periods
presented but may be applied prospectively if retrospective application would be impracticable. We are currently evaluating what impact the adoption of this update will have on our consolidated financial statements.
In November, 2016, the FASB issued ASU
2016-18,
Statement of Cash Flows (Topic 230):
Restricted Cash.
ASU
2016-18
requires that a statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or
restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning and ending balances shown on the statement of
cash flows. The guidance is effective for us in the first quarter of fiscal 2019 and early adoption is permitted. ASU
2016-18
must be applied retrospectively to all periods presented. We are currently
evaluating what impact the adoption of this update will have on our consolidated financial statements.
The Company believes that no other
new accounting guidance that was issued during fiscal 2016 will be relevant to the readers of its financial statements.