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EX-32 - EX-32 - CalAmp Corp.camp-ex32_6.htm
EX-31.2 - EX-31.2 - CalAmp Corp.camp-ex312_7.htm
EX-31.1 - EX-31.1 - CalAmp Corp.camp-ex311_8.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended May 31, 2018

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to          

COMMISSION FILE NUMBER: 0-12182

 

CALAMP CORP.

(Exact name of Registrant as specified in its Charter)

 

 

Delaware

 

95-3647070

(State or other jurisdiction of

     

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

15635 Alton Parkway, Suite 250

 

 

Irvine, California

 

92618

(Address of principal executive offices)

 

(Zip Code)

(949) 600-5600

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes    No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No

The number of shares outstanding of the registrant’s common stock as of June 22, 2018 was 35,281,409.

 


 

CALAMP CORP.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MAY 31, 2018

TABLE OF CONTENTS

 

 

 

 

 

Page

Number

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Financial statements

 

3

 

 

 

 

 

 

 

Condensed consolidated balance sheets (unaudited) as of May 31, 2018 and February 28, 2018

 

3

 

 

 

 

 

 

 

Condensed consolidated statements of comprehensive income (loss) (unaudited) for the three months ended May 31, 2018 and 2017

 

4

 

 

 

 

 

 

 

Condensed consolidated statements of cash flows (unaudited) for the three months ended May 31, 2018 and 2017

 

5

 

 

 

 

 

 

 

Condensed consolidated statement of stockholders’ equity (unaudited) for the three months ended May 31, 2018

 

6

 

 

 

 

 

 

 

Notes to unaudited condensed consolidated financial statements

 

7

 

 

 

 

 

ITEM 2.

 

Management’s discussion and analysis of financial condition and results of operations

 

20

 

 

 

 

 

ITEM 3.

 

Quantitative and qualitative disclosures about market risk

 

25

 

 

 

 

 

ITEM 4.

 

Controls and procedures

 

25

 

 

 

 

 

PART II – OTHER INFORMATION

 

ITEM 1.

 

Legal proceedings

 

26

 

 

 

 

 

ITEM 1A.

 

Risk factors

 

26

 

 

 

 

 

ITEM 2.

 

Unregistered sales of securities and use of proceeds

 

26

 

 

 

 

 

ITEM 6.

 

Exhibits

 

27

 

2


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CALAMP CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)

 

 

 

May 31,

 

 

February 28,

 

Assets

 

2018

 

 

2018

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

169,509

 

 

$

132,603

 

Short-term marketable securities

 

 

9,261

 

 

 

23,400

 

Accounts receivable, net

 

 

69,814

 

 

 

71,580

 

Inventories

 

 

32,557

 

 

 

36,302

 

Prepaid expenses and other current assets

 

 

13,076

 

 

 

12,000

 

Total current assets

 

 

294,217

 

 

 

275,885

 

Property and equipment, net

 

 

21,087

 

 

 

21,262

 

Deferred income tax assets

 

 

32,200

 

 

 

31,581

 

Goodwill

 

 

73,284

 

 

 

72,980

 

Other intangible assets, net

 

 

49,227

 

 

 

52,456

 

Other assets

 

 

23,407

 

 

 

18,829

 

 

 

$

493,422

 

 

$

472,993

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

42,939

 

 

$

35,478

 

Accrued payroll and employee benefits

 

 

6,471

 

 

 

10,606

 

Deferred revenue

 

 

20,232

 

 

 

17,757

 

Other current liabilities

 

 

31,541

 

 

 

31,688

 

Total current liabilities

 

 

101,183

 

 

 

95,529

 

1.625% convertible senior unsecured notes

 

 

156,230

 

 

 

154,299

 

Other non-current liabilities

 

 

33,568

 

 

 

24,249

 

Total liabilities

 

 

290,981

 

 

 

274,077

 

Commitments and contingencies (see Note 16)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $.01 par value; 3,000 shares authorized; no shares issued or outstanding

 

 

 

 

 

 

Common stock, $.01 par value; 80,000 shares authorized; 35,507 and 35,718 shares

   issued and outstanding at May 31, 2018 and February 28, 2018, respectively

 

 

355

 

 

 

357

 

Additional paid-in capital

 

 

214,811

 

 

 

218,217

 

Accumulated deficit

 

 

(12,109

)

 

 

(19,459

)

Accumulated other comprehensive loss

 

 

(616

)

 

 

(199

)

Total stockholders' equity

 

 

202,441

 

 

 

198,916

 

 

 

$

493,422

 

 

$

472,993

 

 

See accompanying notes to condensed consolidated financial statements.

3


CALAMP CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

May 31,

 

 

 

2018

 

 

2017

 

Revenues:

 

 

 

 

 

 

 

 

Products

 

$

76,916

 

 

$

71,120

 

Application subscriptions and other services

 

 

17,972

 

 

 

16,961

 

Total revenues

 

 

94,888

 

 

 

88,081

 

Cost of revenues:

 

 

 

 

 

 

 

 

Products

 

 

47,353

 

 

 

42,425

 

Application subscriptions and other services

 

 

9,444

 

 

 

8,213

 

Total cost of revenues

 

 

56,797

 

 

 

50,638

 

Gross profit

 

 

38,091

 

 

 

37,443

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

6,601

 

 

 

5,832

 

Selling and marketing

 

 

12,497

 

 

 

12,671

 

General and administrative

 

 

13,436

 

 

 

16,410

 

Restructuring (see Note 7)

 

 

3,383

 

 

 

-

 

Intangible asset amortization

 

 

2,748

 

 

 

3,858

 

Total operating expenses

 

 

38,665

 

 

 

38,771

 

Operating loss

 

 

(574

)

 

 

(1,328

)

Non-operating income (expense):

 

 

 

 

 

 

 

 

Investment income

 

 

853

 

 

 

333

 

Interest expense

 

 

(2,665

)

 

 

(2,518

)

Gain on legal settlement (see Note 16)

 

 

13,333

 

 

 

 

Other income (expense)

 

 

(226

)

 

 

116

 

 

 

 

11,295

 

 

 

(2,069

)

Income (loss) before income taxes and equity in net loss of affiliate

 

 

10,721

 

 

 

(3,397

)

Income tax benefit (provision)

 

 

(1,771

)

 

 

1,080

 

Income (loss) before equity in net loss of affiliate

 

 

8,950

 

 

 

(2,317

)

Equity in net loss of affiliate

 

 

(439

)

 

 

(337

)

Net income (loss)

 

$

8,511

 

 

$

(2,654

)

Earnings (loss) per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.24

 

 

$

(0.08

)

Diluted

 

$

0.23

 

 

$

(0.08

)

Shares used in computing earnings (loss) per share:

 

 

 

 

 

 

 

 

Basic

 

 

35,458

 

 

 

35,068

 

Diluted

 

 

36,453

 

 

 

35,068

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

Net income (loss)

 

$

8,511

 

 

$

(2,654

)

Other comprehensive income:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

17

 

 

 

81

 

Unrealized gain on available-for-sale securities, net of tax

 

 

-

 

 

 

41

 

Total comprehensive income (loss)

 

$

8,528

 

 

$

(2,532

)

 

See accompanying notes to condensed consolidated financial statements.

4


CALAMP CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

May 31,

 

 

 

2018

 

 

2017

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

8,511

 

 

$

(2,654

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation expense

 

 

2,043

 

 

 

2,025

 

Intangible assets amortization expense

 

 

2,748

 

 

 

3,858

 

Stock-based compensation expense

 

 

2,467

 

 

 

1,817

 

Tax benefits on vested and exercised equity awards

 

 

220

 

 

 

157

 

Amortization of convertible debt issue costs and discount

 

 

1,931

 

 

 

1,816

 

Unrealized foreign currency transaction losses

 

 

137

 

 

 

 

Deferred tax assets, net

 

 

772

 

 

 

(1,609

)

Equity in net loss of affiliate

 

 

439

 

 

 

337

 

Other

 

 

(99

)

 

 

(319

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

1,621

 

 

 

2,070

 

Inventories

 

 

3,585

 

 

 

(3,348

)

Prepaid expenses and other assets

 

 

(1,255

)

 

 

1,069

 

Accounts payable

 

 

7,538

 

 

 

3,262

 

Accrued liabilities

 

 

(1,369

)

 

 

1,344

 

Deferred revenue

 

 

1,623

 

 

 

1,083

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

 

30,912

 

 

 

10,908

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from maturities of marketable securities

 

 

23,507

 

 

 

6,722

 

Purchases of marketable securities

 

 

(9,262

)

 

 

(546

)

Capital expenditures

 

 

(2,121

)

 

 

(2,079

)

Other

 

 

(26

)

 

 

(69

)

NET CASH PROVIDED BY INVESTING ACTIVITIES

 

 

12,098

 

 

 

4,028

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Repurchases of common stock

 

 

(5,710

)

 

 

 

Taxes paid related to net share settlement of vested equity awards

 

 

(233

)

 

 

(156

)

Proceeds from exercise of stock options

 

 

68

 

 

 

96

 

NET CASH USED IN FINANCING ACTIVITIES

 

 

(5,875

)

 

 

(60

)

EFFECT OF EXCHANGE RATE CHANGES ON CASH

 

 

(229

)

 

 

108

 

Net change in cash and cash equivalents

 

 

36,906

 

 

 

14,984

 

Cash and cash equivalents at beginning of period

 

 

132,603

 

 

 

93,706

 

Cash and cash equivalents at end of period

 

$

169,509

 

 

$

108,690

 

 

See accompanying notes to condensed consolidated financial statements.

5


 

 

 

CALAMP CORP.

 

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

 

(In thousands)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Paid in

 

 

Accumulated

 

 

Comprehensive

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balances at February 28, 2018

 

 

35,718

 

 

$

357

 

 

$

218,217

 

 

$

(19,459

)

 

$

(199

)

 

$

198,916

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,511

 

 

 

 

 

 

 

8,511

 

Cumulative adjustment upon adoption of ASU 2016-01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

434

 

 

 

(434

)

 

 

-

 

Cumulative adjustment upon adoption of ASC 606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,595

)

 

 

 

 

 

 

(1,595

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

2,467

 

 

 

 

 

 

 

 

 

 

 

2,467

 

Shares issued on net share settlement of equity awards

 

 

21

 

 

 

-

 

 

 

(233

)

 

 

 

 

 

 

 

 

 

 

(233

)

Exercise of stock options

 

 

38

 

 

 

-

 

 

 

68

 

 

 

 

 

 

 

 

 

 

 

68

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17

 

 

 

17

 

Repurchases of common stock

 

 

(270

)

 

 

(2

)

 

 

(5,708

)

 

 

 

 

 

 

 

 

 

 

(5,710

)

Balances at May 31, 2018

 

 

35,507

 

 

$

355

 

 

$

214,811

 

 

$

(12,109

)

 

$

(616

)

 

$

202,441

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 


6


CALAMP CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED MAY 31, 2018 AND 2017

NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

CalAmp Corp. (referred to herein as “CalAmp”, “the Company”, “we”, “our”, or “us”) is a telematics pioneer leading transformation in a global connected economy. We help reinvent businesses and improve lives around the globe with technology solutions that streamline complex Internet of Things (“IoT”) deployments through wireless connectivity solutions and derived data intelligence. Our software applications, scalable cloud services, and intelligent devices collect and assess business-critical data anywhere in the world from industrial machines, commercial and passenger vehicles, their passengers and contents. We are a global organization that is headquartered in Irvine, California. We operate under two reportable segments: Telematics Systems and Software & Subscription Services.

Certain notes and other information included in the audited financial statements in our Annual Report on Form 10-K for the year ended February 28, 2018 are condensed or omitted from the interim financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with our 2018 Annual Report on Form 10-K as filed with the U.S. Securities and Exchange Commission on May 10, 2018.

In the opinion of our management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary to present fairly our financial position at May 31, 2018 and our results of operations for the three months ended May 31, 2018 and 2017. The results of operations for such periods are not necessarily indicative of results to be expected for the full fiscal year.

All intercompany transactions and accounts have been eliminated in consolidation.

Revenue Recognition

In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASC 606”). The new revenue recognition standard provides a five-step analytical framework for transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict 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. The two permitted transition methods under the new standard are the full retrospective method or the modified retrospective method. We adopted the new standard effective March 1, 2018 using the modified retrospective method, which we applied to all contracts. We exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by us from a customer.

 

Products. In accordance with ASC 606, we recognize revenue from product sales when upon transfer of control of promised products to customers in an amount that reflects the transaction price, which is generally the stand-alone selling prices of the promised goods. For product shipments made on the basis of “FOB Destination” terms, revenue is recorded when the shipment reaches the customer. Customers generally do not have a right of return except for defective products returned during the warranty period. We record estimated commitments related to customer incentive programs as reductions of revenues.

 

Professional Services. We also provide various professional services to customers. These include project management, engineering services, installation services and an on-going early warning automated notification service, which are typically distinct from other performance obligations and are recognized as the related services are performed.

 

Software-as-a-Service (“SaaS”) and Platform-as-a-Service (“PaaS”). Our SaaS-based and PaaS-based subscriptions for our fleet management, vehicle finance and certain other verticals provide the customers with the ability to wirelessly communicate with monitoring devices installed in vehicles and other mobile or remote assets via software applications hosted by us. Generally, we defer the recognition of revenue for the products that are sold with application subscriptions. In such circumstances, the associated product costs are recorded as deferred costs in the balance sheet. The upfront fees for the devices are not distinct from the subscription service and are combined into the subscription service performance obligation. The upfront fees may provide a material right to the customer that has influence over the customers’ right to renew. Generally, these service arrangements do not provide the customer with the right to take possession of the software supporting the subscription service at any time. Revenues from subscription services are recognized ratably, on a straight-line basis, over the term of the subscription. Subscription renewal fees are recognized ratably over the term of the renewal. The deferred product revenue and deferred product cost amounts are amortized to application subscriptions revenue and cost of revenue, respectively, on a straight-line basis over the estimated average in-service lives of these devices, which are three years in the vehicle finance vertical and four years in the fleet management vertical. Our deferred contract revenue under ASC 606 does not include future subscription fees associated with customers’ unexercised contract renewal rights.

 

7


Contract Balances. Timing of revenue recognition may differ from the timing on invoicing to customers. Contract liabilities are comprised of billings or payments received from our customers in advance of performance under the contract. We refer to these contract liabilities as “Deferred Revenues” in the accompanying condensed consolidated financial statements. During the three months ended May 31, 2018, we recognized $6.5 million in revenue from the beginning deferred revenue balance of $41.7 million.

 

As of May 31, 2018, we have estimated remaining performance obligations for contractually committed revenues of $43.8 million, of which we expect to recognize approximately 46% over the next 12 months and the remainder thereafter. We have utilized the practical expedient to exclude contracts that have original durations of less than one year from the aforementioned remaining performance obligation disclosure.  

Cash and Cash Equivalents

We consider all highly liquid investments with maturities at date of purchase of three months or less to be cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable consists of amounts due to us from sales arrangements that are executed in our normal business activities and are recorded at invoiced amounts. We present the aggregate accounts receivable balance net of an allowance for doubtful accounts. We mitigate a portion of our receivables credit risk through credit insurance. Generally, collateral and other security is not obtained for outstanding accounts receivable. Credit losses, if any, are recognized based on management’s evaluation of historical collection experience, customer-specific financial conditions as well as an evaluation of current industry trends and general economic conditions. Past due balances are assessed by management on a monthly basis, and balances are written off when the customer’s financial condition no longer warrants pursuit of collection. Although we expect to collect amounts due, actual collections may differ from estimated amounts. The allowance for doubtful accounts totaled $0.9 million and $1.2 million as of May 31, 2018 and February 28, 2018, respectively.

Fair Value Measurements

We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements. We define fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly manner in an arm’s-length transaction between market participants at the measurement date. Fair value is estimated by using the following hierarchy:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, 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 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

In accordance with the fair value accounting requirements, companies may choose to measure eligible financial instruments and certain other items at fair value. We have elected the fair value option for our investments in marketable securities on a contract-by-contract basis at the time each contract is initially recognized in the financial statements or upon an event that gives rise to a new basis of accounting for the items.

Patent Litigation and Other Contingencies

We accrue for patent litigation and other contingencies whenever we determine that an unfavorable outcome is probable and a liability is reasonably estimable. The amount of the accrual is estimated based on a review of each claim, including the type and facts of the claim and our assessment of the merits of the claim. These accruals are reviewed at least on a quarterly basis and are adjusted to reflect the impact of recent negotiations, settlements, court rulings, advice from legal counsel and other events pertaining to the case. Such accruals, if any, are recorded as general and administrative expense in our consolidated statements of comprehensive income (loss). Although we take considerable measures to mitigate our exposure in these matters, litigation is inherently unpredictable. Nonetheless, we believe that we have valid defenses with respect to pending legal matters against us as well as adequate provisions for probable and estimable losses.

Foreign Currency Translation

We translate the assets and liabilities of our non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates in effect at the end of each period. Revenue and expenses for these subsidiaries are translated using rates that approximate those in effect during the period. Gains and losses from these translations are recognized in foreign currency translation included in accumulated other comprehensive income (loss) during the period. The aggregate foreign currency transaction exchange rate losses included in determining income (loss) before income taxes were immaterial for both of the three months periods ended May 31, 2018 and 2017.

8


Recently Issued Accounting Standards

In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2017-09, Compensation – Stock Compensation: Scope of Modification Accounting (“ASU 2017-09”). The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC 718 Compensation – Stock Compensation. We adopted the standard during the fiscal quarter ended May 31, 2018. The adoption of the standard had no impact on our condensed consolidated financial statement for the three months ended May 31, 2018.

In January 2017, the FASB issued Accounting Standards Update 2017-04, Simplifying the Test for Goodwill Impairment. This guidance eliminates Step 2 from the goodwill impairment test and instead requires that an entity measure the impairment of goodwill assigned to a reporting unit if the carrying value of assets and liabilities assigned to the reporting unit, including goodwill, exceed the reporting unit's fair value. The new guidance must be adopted for annual and interim goodwill tests in fiscal years beginning after December 15, 2019. After the adoption of this standard, which will be applied prospectively, we will follow a one-step model for goodwill impairment. We do not anticipate this pronouncement will have a significant impact on our condensed consolidated financial statements upon adoption.

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements at the time of adoption, with certain practical expedients available. Early adoption is permitted. We have not completed the assessment of the impact on our condensed consolidated financial statements, but we do expect to record ROU assets and lease liabilities upon adoption.

In January 2016, the FASB issued Accounting Standards Update 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). This standard revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments. Under the new guidance, entities will have to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for a new practicality exception. We adopted the standard during the fiscal quarter ended May 31, 2018. Upon adoption, we reclassified $0.4 million of unrealized gain (net of income taxes) reported in accumulated other comprehensive loss for available for sale equity securities to beginning accumulated deficit.

In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers. The new revenue recognition standard (“ASC 606”) provides a five-step analytical framework for transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict 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. The new standard is effective for annual reporting periods beginning after December 15, 2017; therefore, we were required to adopt this standard effective March 1, 2018. The two permitted transition methods under the new standard are the full retrospective method or the modified retrospective method. We adopted the new standard using the modified retrospective method and applied to all contracts with customers. The new standard did not materially affect our results of operations, financial position or cash flows. The new standard resulted in minor changes to the timing of recognition of revenues for certain deferred revenues.

Since the modified retrospective method does not result in recasting of the prior year financial statements, ASC 606 requires us to provide additional disclosures for the amount by which each financial statement line item was affected by adoption of the standard, with an explanation of the reasons for significant changes.

The cumulative effect of the changes made to our consolidated balance sheet for the adoption of ASC 606 were as follows (in thousands):

 

 

Balance at

February 28, 2018

 

 

Topic ASC 606 Adjustments

 

 

Balance at

March 1, 2018

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

$

12,000

 

 

 

1,891

 

 

$

13,891

 

Deferred income tax assets

 

31,581

 

 

 

532

 

 

 

32,113

 

Other assets

 

18,829

 

 

 

3,145

 

 

 

21,974

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

$

17,757

 

 

 

2,156

 

 

 

19,913

 

Other non-current liabilities

 

24,249

 

 

 

5,007

 

 

 

29,256

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

 

 

 

Accumulated deficit

$

(19,459

)

 

 

(1,595

)

 

 

(21,054

)

9


 

In accordance with the requirements of ASC 606, the disclosure of the impact of adoption on our condensed consolidated balance sheet for the first quarter of current fiscal year was as follows:

 

 

For the first quarter ended May 31, 2018

 

 

As reported

 

 

Topic ASC 606 Adjustments

 

 

Without ASC 606 Adoption

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

$

13,076

 

 

 

(1,766

)

 

$

11,310

 

Deferred income tax assets

 

32,200

 

 

 

(532

)

 

 

31,668

 

Other assets

 

23,407

 

 

 

(3,202

)

 

 

20,205

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

$

20,232

 

 

 

(1,809

)

 

 

18,423

 

Other non-current liabilities

 

33,568

 

 

 

(5,212

)

 

 

28,356

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

Accumulated deficit

$

(12,109

)

 

 

1,575

 

 

 

(10,534

)

 

The impact of adopting ASC 606 on our condensed consolidated financial statements for the first quarter of the current fiscal year was immaterial.

NOTE 2 – CASH, CASH EQUIVALENTS AND INVESTMENTS

The following tables summarize our financial instrument assets (in thousands):

 

 

 

As of May 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Classification

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of Fair Value

 

 

 

 

 

 

 

Unrealized

 

 

 

 

 

 

Cash and

 

 

Short-Term

 

 

 

 

 

 

 

Adjusted

 

 

Gains

 

 

Fair

 

 

Cash

 

 

Marketable

 

 

Other

 

 

 

Cost

 

 

(Losses)

 

 

Value

 

 

Equivalents

 

 

Securities

 

 

Assets

 

Cash

 

$

81,851

 

 

$

 

 

$

81,851

 

 

$

81,851

 

 

$

 

 

$

 

Level 1:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

 

8,405

 

 

 

 

 

 

8,405

 

 

 

8,405

 

 

 

 

 

 

 

Mutual funds (1)

 

 

5,946

 

 

 

720

 

 

 

6,666

 

 

 

 

 

 

 

 

 

6,666

 

International equities

 

 

309

 

 

 

4

 

 

 

313

 

 

 

 

 

 

 

 

 

313

 

Level 2:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase agreements

 

 

74,500

 

 

 

 

 

 

74,500

 

 

 

74,500

 

 

 

 

 

 

 

Corporate bonds

 

 

14,016

 

 

 

(2

)

 

 

14,014

 

 

 

4,753

 

 

 

9,261

 

 

 

 

Total

 

$

185,027

 

 

$

722

 

 

$

185,749

 

 

$

169,509

 

 

$

9,261

 

 

$

6,979

 

10


 

 

 

As of February 28, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Classification

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of Fair Value

 

 

 

 

 

 

 

Unrealized

 

 

 

 

 

 

Cash and

 

 

Short-Term

 

 

 

 

 

 

 

Adjusted

 

 

Gains

 

 

Fair

 

 

Cash

 

 

Marketable

 

 

Other

 

 

 

Cost

 

 

(Losses)

 

 

Value

 

 

Equivalents

 

 

Securities

 

 

Assets

 

Cash

 

$

51,529

 

 

$

 

 

$

51,529

 

 

$

51,529

 

 

$

 

 

$

 

Level 1:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

 

9,034

 

 

 

 

 

 

9,034

 

 

 

9,034

 

 

 

 

 

 

 

Mutual funds (1)

 

 

4,920

 

 

 

721

 

 

 

5,641

 

 

 

 

 

 

 

 

 

5,641

 

International equities

 

 

2,175

 

 

 

643

 

 

 

2,818

 

 

 

 

 

 

2,509

 

 

 

309

 

Level 2:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase agreements

 

 

57,500

 

 

 

 

 

 

57,500

 

 

 

57,500

 

 

 

 

 

 

 

Corporate bonds

 

 

35,444

 

 

 

(13

)

 

 

35,431

 

 

 

14,540

 

 

 

20,891

 

 

 

 

Total

 

$

160,602

 

 

$

1,351

 

 

$

161,953

 

 

$

132,603

 

 

$

23,400

 

 

$

5,950

 

 

(1)

Amounts represent various equities, bond and money market mutual funds that are held in a “Rabbi Trust” and are restricted for payment obligations to non-qualified deferred compensation plan participants. 

NOTE 3 - INVENTORIES

Inventories consist of the following (in thousands):

 

 

May 31,

 

 

February 28,