|Component: (Network and Table)|
2010 - Disclosure - Summary of Significant Accounting Policies (Policies)
|Reporting Entity [Axis]||0001002225 (http://www.sec.gov/CIK)|
|Summary of Significant Accounting Policies||Period [Axis]|
2012-01-01 - 2012-12-31
Summary of Significant Accounting Policies
Basis of presentation
Basis of presentation: The consolidated financial statements include the accounts of Advent and its subsidiaries after elimination of all intercompany transactions and amounts. The Company has prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the SEC.
Effective with the first quarter of 2011, the Company changed the presentation of the components of net revenues to recurring and non-recurring to reflect the predominant nature of the Company's sources of revenue. Recurring revenues are comprised of term license, maintenance from legacy perpetual arrangements, and other recurring revenues. Non-recurring revenues are comprised of professional services and other revenues, which now include perpetual license fees. Prior periods have been reclassified to reflect this change.
Divestiture of the MicroEdge Segment and Discontinued Operation Reclassification
Divestiture of the MicroEdge Segment and Discontinued Operation Reclassification: On October 1, 2009, Advent completed the sale of MicroEdge, Inc. ("MicroEdge") a wholly-owned subsidiary of the Company. The assets, liabilities and results of MicroEdge have been reclassified as a discontinued operation in the consolidated financial statements for all periods presented. The results of operations and the related charges for the discontinued operation are classified as "Net income from discontinued operation, net of applicable taxes" in the accompanying consolidated statements of operations. Refer to Note 4 "Discontinued Operation" to these Notes to Consolidated Financial Statements, for additional information on the Microedge discontinued operation.
Year End: Advent's fiscal year begins on January 1 and ends on December 31.
Foreign currency translation
Foreign currency translation: The functional currencies of the Company's foreign subsidiaries are their local currencies. All assets and liabilities denominated in foreign functional currencies are translated into U.S. dollars at the exchange rate on the balance sheet date and equity balances are translated at historical rates. Revenues, costs and expenses in foreign functional currencies are translated at the average rate of exchange during the period.
Foreign currency measurement
Foreign currency measurement: Asset and liabilities denominated in currencies other than the functional currencies are re-measured into the functional currency with gains or losses recorded in "interest income and other expense, net" on the consolidated statement of operations.
Use of estimates
Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information available as of the date of the financial statements. Actual results could differ from those estimates. Advent believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements: Business Combinations; Dispositions; Goodwill; Revenue Recognition and Deferred Revenues; Income Taxes; Restructuring Charges and Related Accruals; Impairment of Long-Lived Assets; Legal Contingencies; Sales Returns and Accounts Receivable Allowances; and Stock-Based Compensation.
Cash equivalents: Cash equivalents are comprised of highly liquid investments purchased with an original or remaining maturity of 90 days or less at the date of purchase.
Marketable securities: Marketable securities consist primarily of U.S. government and U.S. Government Sponsored Entities (GSE's), foreign government debt securities and high credit quality corporate debt securities not otherwise classified as cash equivalents. All marketable securities are considered available-for-sale and are carried at fair value on the Company's consolidated balance sheets. Short-term marketable securities mature twelve months or less from the date of the balance sheet and long-term marketable securities mature greater than twelve months from the date of the balance sheet.
Advent periodically reviews the realizability of each short-term and long-term marketable security when impairment indicators exist with respect to the security. If an other-than-temporary impairment of value of the security exists, the carrying value of the security is written down to its estimated fair value. Factors considered in determining whether a loss is temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition, credit quality and near-term prospects of the investee, and Advent's ability to hold the securities for a period of time sufficient to allow for any anticipated recovery in market value.
Investments: Investments are included in "other assets" on the consolidated balance sheets and consist of non-marketable investments in privately held companies, most of which can be considered in the start-up or development stages. Investments are recorded at cost and reviewed for impairment. It is Advent's policy to review investments in privately held companies on a regular basis to evaluate the carrying amount and economic viability of these companies. This policy includes, but is not limited to, reviewing each of the companies' cash position, financing needs, earnings/revenue outlook, operational performance, management/ownership changes and competition. The evaluation process is based on information that Advent requests from these privately held companies. This information is not subject to the same disclosure regulations as U.S. publicly traded companies, and as such, the basis for these evaluations is subject to timing and the accuracy of the data received from these companies.
The Company's investments in privately held companies are assessed for impairment when a review of the investee's operations indicate that there exists a decline in value of the investment and the decline is other than temporary. Such indicators include, but are not limited to, limited capital resources, limited prospects of receiving additional financing, and prospects for liquidity of the related securities. Impaired investments in privately held companies are written down to estimated fair value. The Company estimates fair value using a variety of valuation methodologies. Such methodologies include comparing the private company with publicly traded companies in similar lines of business, applying revenue multiples to estimated future operating results for the private company and estimating discounted cash flows for that company.
Product development: Product development expenses consist primarily of salary, benefits and stock-based compensation for the Company's development and technical support staff, contractors' fees and other costs associated with the enhancements of existing products and services and development of new products and services. Costs incurred for software development prior to technological feasibility are expensed as product development costs in the period incurred. Once the point of technological feasibility is reached, which is generally the completion of a working prototype that has no critical bugs and is a release candidate, development costs are capitalized until the product is ready for general release and are classified within "other intangibles, net" on the consolidated balance sheets. The Company amortizes capitalized software development costs using the greater of the ratio of the products' current gross revenues to the total of current gross revenues and expected gross revenues or on a straight-line basis over the estimated economic life of the related product, which is typically three years.
Capitalization of internal use software
Capitalization of internal use software: Certain costs related to computer software developed or obtained for internal use are capitalized in accordance with ASC 350-40, "Internal Use Software". The Company amortizes internal use software costs over their estimated useful lives, which typically range from three to five years.
Property and equipment
Property and equipment: Property and equipment are stated at cost, less accumulated depreciation and amortization. Advent calculates depreciation and amortization using the straight-line method over the assets' estimated useful lives. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the estimated useful life of the assets or the remaining lease term. The cost and related accumulated depreciation applicable to property and equipment sold or no longer in service are eliminated from the accounts and any gains or losses are included in operating expenses. Useful lives by principal classifications are as follows:
Repairs and maintenance expenditures, which are not considered improvements and do not extend the useful life of the property and equipment, are expensed as incurred.
Goodwill: Advent reviews its goodwill for impairment annually during the fourth quarter of our fiscal year, as of November 1, and more frequently if an event or circumstance indicates that an impairment loss has occurred. Goodwill is tested for impairment at the reporting unit level. Advent has determined that it has one reporting unit which comprises the Advent Investment Management segment, for the goodwill impairment testing performed during the fourth quarter of 2012. In October 2012, the Company reorganized its operations which resulted in a change in the internal management reporting structure to a global functional structure. Prior to October 2012, the Company had two reporting units, Domestic and International, which together comprised the Advent Investment Management segment.
Advent's test for goodwill impairment starts with a qualitative assessment to determine whether it is necessary to perform the quantitative goodwill impairment test. If Advent determines, based on the qualitative factors, that the fair value of the reporting unit is not more likely than not greater than the carrying amount, then quantitative goodwill impairment test is required.
The quantitative test for goodwill impairment is a two-step process. The first step compares the fair value of each reporting unit with its respective carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of our reporting unit is considered not impaired, thus the second step of the impairment test is unnecessary. The second step, used to measure the amount of impairment loss, compares the implied fair value of each reporting unit's goodwill with the respective carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess.
Determining the fair value of a reporting unit is subjective and requires judgment at many points during the test including the development of future revenue and expense forecasts used to calculate future cash flows, the selection of risk-adjusted discount rates, and determination of market comparable entities.
Accounting for long-lived assets
Accounting for long-lived assets: Advent reviews its long-lived assets, including property and equipment and other intangibles, for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable.
Recoverability is measured by comparing the carrying amount of the assets to the expected future undiscounted net cash flows to be generated by those assets. If such assets are considered to be impaired, the impairment to be recognized is measured based on the amount by which the carrying amount of the asset exceeds its fair value.
Other intangible assets mainly represent completed technology, distributor licenses, customer lists, trademark/tradenames and non-compete agreements acquired in business combinations. Acquired identifiable intangibles are amortized on a straight-line basis over their estimated useful lives as follows:
Revenue recognition and deferred revenues
Revenue recognition and deferred revenues: Advent recognizes revenue from term license, maintenance and other recurring revenues; perpetual license fees, professional services and other. Advent offers a wide variety of products and services to a large number of financially sophisticated customers. While many of our license transactions, maintenance contracts, subscription-based transactions and professional services projects conform to a standard structure, many of our larger transactions are complex and may require significant review and judgment in our application of accounting principles generally accepted in the United States.
Software license fees
Software license fees. Advent recognizes revenue from the licensing of software when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed or determinable and collection of the resulting receivable is probable. Advent generally uses a signed license agreement as evidence of an arrangement. Sales through the Company's distributors are evidenced by a master agreement governing the relationship together with binding order forms and signed contracts from the distributor's customers. Revenue is recognized once delivery to the distributor's customer has taken place and when all other revenue recognition criteria have been met. Delivery occurs upon notification that software is available for electronic download through our fulfillment vendor, or when a product is delivered to a common carrier F.O.B shipping point, or upon confirmation that product delivered F.O.B shipping destination has been received. Some of the Company's arrangements include acceptance provisions; if such acceptance provisions are present, delivery is deemed to occur upon acceptance. Advent assesses whether the fee is fixed or determinable based on the payment terms associated with the transaction. Advent assesses whether the collectability of the resulting receivable is probable based on a number of factors, including the credit worthiness of the customer determined through a credit review process, including credit reporting agency reports, publicly available customer information, financial statements and other available information and pertinent country risk if the customer is located outside the United States. The Company's standard payment terms are due at 180 days or less, but payment terms may vary based on the country in which the agreement is executed. Software licenses are sold with maintenance, and often professional services.
Advent typically licenses its products on a per server, per user basis with the price per customer varying based on the selection of the products licensed, the assets under administration, the number of site installations and the number of authorized users.
Advent categorizes revenues in its consolidated statements of operations as recurring revenues and non-recurring revenues. Recurring revenues are comprised of term license, perpetual maintenance arrangements and other recurring revenue (which includes revenues from Black Diamond, Advent OnDemand and incremental Assets Under Administration ("AUA") fees from perpetual licenses). Non-recurring revenues are comprised of perpetual license fees, professional services and other revenue.
Recurring product revenues for fiscal 2012, 2011 and 2010 were as follows (in thousands):
Directly related expenses
Directly related expenses: When Advent defers service revenues, it also defers the direct costs incurred in the delivery of those services to the extent those costs are recoverable through future revenues, on non-cancelable contracts, as prepaid contract expense. Advent recognizes those deferred costs as costs of professional services revenues proportionally and over the same period that the deferred revenue is recognized as service revenue. When Advent defers license revenue, the Company defers the direct incremental costs incurred as a result of selling the contract (i.e. sales commissions earned by the sales force as a part of their overall compensation) because those costs would not have been incurred but for the acquisition of that contract. Advent recognizes those costs as sales and marketing expense proportionally and over the same period as the license revenues.
Allowance for doubtful accounts and sales returns
Allowance for doubtful accounts and sales returns: Advent analyzes specific accounts receivable, historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in its customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. Advent has recorded a provision for bad debt of $0.4 million in fiscal 2012 and $0.2 million in each of fiscal years 2011 and 2010.
Advent also analyzes customer demand and acceptance of product and historical returns when evaluating the adequacy of the allowance for sales returns, which are not generally provided to customers. Allowances for sales returns are accounted for as deductions to net revenues and increases to reserves within deferred revenues. Advent's standard practice is to enforce its contract terms and not allow its customers to return software. The Company has, however, allowed customers to return software on a limited case-by-case basis. The Company only provides a contractual limited right of return to the end-user customer when it sells shrink-wrap license agreements. The shrink-wrap license agreement provides for a right of return within seven days of delivery of the software.
Advent has the ability to estimate returns based on a long history of experience with relatively homogenous transactions and the fact that the return period is short. The Company has recorded sales return provisions as offsets to revenue in the period the sales return becomes probable. The estimates for returns are adjusted periodically based upon historical rates of returns and other related factors. Advent has a methodology for calculating the value of reserves that takes the previous 12 months of experience into account. Advent has recorded a sales returns provision (benefit) to decrease (increase) revenue for these situations based on the Company's historical experience of $1.2 million, $(0.2) million and $(0.6) million in fiscal 2012, 2011 and 2010, respectively.
Advertising costs: The Company expenses advertising costs as incurred and classifies these costs as sales and marketing expense. Total advertising expenses were $0.6 million, $0.5 million, and $0.7 million for fiscal 2012, 2011 and 2010, respectively.
Stock-based compensation: Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period.
Advent uses the Black-Scholes option pricing model to determine the fair value of stock options, stock appreciation rights ("SARs") and employee stock purchase plan shares. The fair value of the Company's restricted stock units is calculated based on the fair market value of Advent's stock on the date of grant. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by Advent's stock price as well as assumptions regarding a number of complex and subjective variables. These variables include Advent's expected stock price volatility over the term of the awards, actual and projected employee exercise behaviors, risk-free interest rate and expected dividends.
As the stock-based compensation expense recognized on the consolidated statements of operations for fiscal 2012, 2011 and 2010 is based on awards ultimately expected to vest, such amount has been reduced for estimated forfeitures at the time of grant and is revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on the Company's historical experience over the last ten years.
Advent assesses on a quarterly basis the adequacy of the Company's pool of windfall tax benefits to determine if there are any deficiencies which require recognition in the Company's consolidated statements of operations.
Restructuring charges and related accruals
Restructuring charges and related accruals: Advent has developed and implemented formalized plans for restructuring the business to better align its resources to market conditions and recorded charges resulting from the restructuring plans. In connection with the restructuring plans, Advent has recorded estimated expenses for severance and benefits, lease cancellations, asset write-offs and other restructuring costs. Given the significance and timing of the execution of such activities, this process is complex and involves periodic reassessments of estimates made at the time the original decisions were made, including evaluating real estate market conditions for expected vacancy periods and sub-lease rental income. Advent continually evaluates the adequacy of the remaining liabilities under the restructuring initiatives. Although the Company believes that these estimates accurately reflect the costs of the restructuring plans, actual results may differ, thereby requiring Advent to record additional provisions or reverse a portion of such provisions.
Income taxes: Advent accounts for worldwide income taxes under an asset and liability approach that requires the expected future tax consequences of temporary differences between book and tax bases of assets and liabilities be recognized as deferred tax assets and liabilities. A valuation allowance is recorded to reduce the net deferred tax assets to an amount that is more likely than not to be realized.
The Company has elected to use the "with and without" approach in determining the order in which tax attributes are utilized. As a result, the Company will only recognize a tax benefit from stock-based awards in additional paid-in capital if an incremental tax benefit is realized after all other tax attributes currently available to the Company have been utilized. In addition, the Company has elected to account for the impact of stock-based awards on other tax attributes, such as the research tax credit, through the consolidated statements of operations.
Net income per share
Net income per share: Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding for that period. Diluted net income per share is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential shares consist of incremental common shares issuable upon exercise of stock options and stock appreciation rights, vesting of restricted stock units and conversion of preferred stock (none outstanding) for all periods, except in situations where inclusion is anti-dilutive.
Comprehensive income: Comprehensive income consists of net income and net unrealized foreign currency translation adjustments and net unrealized gains or losses on available-for-sale marketable securities, net of tax, and is presented in the Company's consolidated statements of comprehensive income.
Segment information: On October 1, 2009, Advent completed the sale of its MicroEdge subsidiary and accordingly, the results of MicroEdge have been classified as a discontinued operation in the consolidated statements of operations for all periods presented. The Company now operates under a single reportable segment, Advent Investment Management. Refer to Note 4 "Discontinued Operation" to these Notes to Consolidated Financial Statements, for additional information on the Microedge discontinued operation.
Sales outside the U.S., which are based on the location to which the product is shipped or services are delivered, represented 17%, 18%, and 15% of the Company's net revenues for fiscal 2012, 2011 and 2010, respectively. No single customer accounted for more than 10% of net revenues for fiscal 2012, 2011 or 2010.
Certain risks and concentrations
Certain risks and concentrations: Product revenues are concentrated in the investment management software industry, which is highly competitive and rapidly changing. Significant technological changes in the industry or customer requirements, or the emergence of competitive products with new capabilities or technologies could adversely affect operating results. Additionally, Advent derives a significant portion of its revenues from its Geneva, APX, Axys and Moxy applications and ancillary products and services, and therefore their market acceptance is essential to the Company's success.
Financial instruments that potentially subject the Company to concentrations of credit risks comprise, principally, cash, cash equivalents, marketable securities, trade accounts receivable and debt. Advent invests excess cash through banks, mutual funds, and brokerage houses primarily in highly liquid securities and has investment policies and procedures that attempt to minimize credit risk. Advent's marketable securities consist of diversified investment grade securities and foreign debt securities. The Company believes no significant concentration of credit risk exists with respect to these securities.
With respect to accounts receivable, Advent performs ongoing credit evaluations of its customers and does not require collateral. The Company maintains reserves for potential credit losses on customer accounts when deemed necessary. At December 31, 2012 and 2011, no single customer accounted for more than 10% of accounts receivable.
Common Stock Repurchases
Common Stock Repurchases: Advent accounts for common stock repurchases by allocating the cash paid in excess of par value to additional paid-in capital and accumulated deficit. The Company calculates the average additional paid-in capital per outstanding share at the beginning of each monthly period in which stock was repurchased and records the difference between the repurchase price per share and the sum of the par value and average paid-in capital per share as an increase to accumulated deficit.
Allowance for doubtful accounts and sales returns
Professional services and other revenues
Maintenance and other recurring revenues