EX-99.1 3 a15-13755_1ex99d1.htm EX-99.1

Exhibit 99.1

 

lynda.com, Inc.

Unaudited Condensed Consolidated Interim
Financial Statements

Three Months Ended March 31, 2015 and 2014

 



 

lynda.com, Inc.

Index

Three Months Ended March 31, 2015 and 2014

 

 

Page(s)

 

 

Condensed Consolidated Interim Financial Statements (Unaudited)

 

 

 

Balance Sheets

1

 

 

Statements of Operations and Comprehensive (Loss) Income

2

 

 

Statements of Cash Flows

3

 

 

Notes to Financial Statements

4–12

 



 

lynda.com, Inc.

Condensed Consolidated Balance Sheets

March 31, 2015 and December 31, 2014

 

 

 

2015

 

2014

 

 

 

(unaudited)

 

(unaudited)

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash

 

$

143,113,000

 

$

135,050,000

 

Accounts receivable, net

 

8,847,000

 

12,655,000

 

Prepaid expenses and other current assets

 

4,115,000

 

3,207,000

 

Deferred tax assets

 

3,997,000

 

4,092,000

 

Total current assets

 

160,072,000

 

155,004,000

 

Property and equipment, net

 

15,850,000

 

15,924,000

 

Capitalized production costs, net

 

9,998,000

 

10,139,000

 

Intangible assets, net

 

5,651,000

 

6,400,000

 

Goodwill

 

6,721,000

 

7,372,000

 

Other assets

 

409,000

 

391,000

 

Total assets

 

$

198,701,000

 

$

195,230,000

 

Liabilities, Redeemable Convertible Preferred Stock, and Shareholders’ Deficit

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

$

4,268,000

 

$

2,390,000

 

Accrued expenses and other current liabilities

 

20,100,000

 

20,081,000

 

Deferred revenue

 

66,691,000

 

63,340,000

 

Deferred rent

 

351,000

 

371,000

 

Total current liabilities

 

91,410,000

 

86,182,000

 

Deferred revenue, less current portion

 

5,375,000

 

5,864,000

 

Deferred tax liabilities

 

4,032,000

 

4,090,000

 

Deferred rent, less current portion

 

800,000

 

902,000

 

Other liabilities

 

37,000

 

432,000

 

Total liabilities

 

101,654,000

 

97,470,000

 

Commitments and contingencies (Note 6)

 

 

 

 

 

Redeemable convertible preferred stock

 

 

 

 

 

Series A, $0.001 par value; 37,248,564 shares authorized, issued and outstanding at March 31, 2015 and December 31, 2014, respectively

 

102,726,000

 

102,705,000

 

Series B, $0.001 par value; 39,157,896 shares authorized, issued and outstanding at March 31, 2015 and December 31, 2014, respectively

 

180,769,000

 

180,538,000

 

Total redeemable convertible preferred stock

 

283,495,000

 

283,243,000

 

Shareholders’ deficit

 

 

 

 

 

Common stock, $0.001 par value; 175,000,000 shares authorized, 68,435,289 shares issued and outstanding at March 31, 2015 and; $0.001 par value; 175,000,000 shares authorized, 68,364,377 shares issued and outstanding at December 31, 2014

 

69,000

 

69,000

 

Additional paid-in capital

 

539,000

 

 

Accumulated deficit

 

(185,319,000

)

(184,992,000

)

Accumulated other comprehensive loss

 

(1,737,000

)

(743,000

)

Total controlling interests

 

(186,448,000

)

(185,666,000

)

Noncontrolling interests

 

 

183,000

 

Total shareholders’ deficit

 

(186,448,000

)

(185,483,000

)

Total liabilities and shareholders’ deficit

 

$

198,701,000

 

$

195,230,000

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

1



 

lynda.com, Inc.

Condensed Consolidated Statements of Operations and

Comprehensive (Loss) Income

Three Months Ended March 31, 2015 and 2014

 

 

 

2015

 

2014

 

 

 

(unaudited)

 

(unaudited)

 

 

 

 

 

 

 

Revenues

 

$

43,537,000

 

$

34,824,000

 

Costs and operating expenses

 

 

 

 

 

Costs of revenues

 

7,943,000

 

7,046,000

 

Technology and development

 

7,318,000

 

5,658,000

 

Sales and marketing

 

16,022,000

 

9,345,000

 

General and administrative

 

12,633,000

 

9,851,000

 

Total costs and operating expenses

 

43,916,000

 

31,900,000

 

(Loss) income from operations

 

(379,000

)

2,924,000

 

Interest income

 

90,000

 

21,000

 

Interest expense

 

(93,000

)

(126,000

)

Other income (expense), net

 

67,000

 

(16,000

)

(Loss) income before tax provision

 

(315,000

)

2,803,000

 

Income tax provision

 

13,000

 

919,000

 

Net (loss) income

 

(328,000

)

1,884,000

 

Net income attributable to noncontrolling interests

 

 

(437,000

)

Net (loss) income attributable to controlling interests

 

$

(328,000

)

$

1,447,000

 

Comprehensive (loss) income

 

 

 

 

 

Net (loss) income

 

$

(328,000

)

$

1,884,000

 

Foreign currency translation adjustments

 

(994,000

)

35,000

 

Comprehensive (loss) income

 

(1,322,000

)

1,919,000

 

Net income attributable to noncontrolling interests

 

 

(437,000

)

Comprehensive (loss) income attributable to controlling interests

 

$

(1,322,000

)

$

1,482,000

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

2



 

lynda.com, Inc.

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31, 2015 and 2014

 

 

 

2015

 

2014

 

 

 

(unaudited)

 

(unaudited)

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

Net (loss) income

 

$

(328,000

)

$

1,884,000

 

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

 

 

 

 

 

Depreciation expense

 

1,561,000

 

1,587,000

 

Amortization expense

 

2,853,000

 

1,905,000

 

Share-based compensation

 

728,000

 

572,000

 

Change in fair value of interest rate swaps

 

 

(6,000

)

Deferred income taxes

 

(3,000

)

27,000

 

Loss on disposal of fixed assets

 

 

53,000

 

Change in operating assets and liabilities

 

 

 

 

 

Accounts receivable

 

3,664,000

 

326,000

 

Prepaid expenses and other current assets

 

(923,000

)

(193,000

)

Other assets

 

(19,000

)

(44,000

)

Accounts payable

 

1,917,000

 

632,000

 

Deferred revenue

 

3,246,000

 

5,322,000

 

Deferred rent

 

(122,000

)

(88,000

)

Accrued expenses and other current liabilities

 

(22,000

)

1,126,000

 

Other liabilities

 

(395,000

)

271,000

 

Net cash provided by operating activities

 

12,157,000

 

13,374,000

 

Cash flows from investing activities

 

 

 

 

 

Change in restricted cash

 

 

476,000

 

Capitalized production costs

 

(2,022,000

)

(1,434,000

)

Capitalized software development costs

 

(305,000

)

(356,000

)

Proceeds from sale of assets held for sale

 

 

6,125,000

 

Purchases of property and equipment

 

(1,516,000

)

(1,437,000

)

Purchases of intangible assets

 

 

(46,000

)

Net cash (used in) provided by investing activities

 

(3,843,000

)

3,328,000

 

Cash flows from financing activities

 

 

 

 

 

Payments of capital lease obligations

 

 

(157,000

)

Payments of debt

 

 

(3,922,000

)

Settlement of interest rate swap agreements

 

 

(101,000

)

Proceeds from exercise of stock options

 

62,000

 

72,000

 

Distributions to noncontrolling interests

 

(183,000

)

 

Net cash used in financing activities

 

(121,000

)

(4,108,000

)

Effect of exchange rate changes on cash

 

(130,000

)

6,000

 

Net increase in cash

 

8,063,000

 

12,600,000

 

Cash

 

 

 

 

 

Beginning of year

 

135,050,000

 

46,496,000

 

End of period

 

$

143,113,000

 

$

59,096,000

 

Supplemental disclosure

 

 

 

 

 

Cash paid for interest

 

$

42,000

 

$

61,000

 

Cash paid (received) related to taxes

 

199,000

 

(165,000

)

Noncash, investing and financing activities

 

 

 

 

 

Accretion of Preferred Stock issuance costs

 

$

252,000

 

$

21,000

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3



 

lynda.com, Inc.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

Three Months Ended March 31, 2015 and 2014

 

1.         Organization, Basis of Presentation, and Principles of Consolidation

 

Description of the Organization and Nature of Operations

 

lynda.com, Inc. was initially formed as a limited liability company on October 31, 1997, under the laws of the State of California.  lynda.com, Inc. (“LDC”) subsequently incorporated on January 14, 2000, under the laws of the State of California and upon incorporation elected S-Corporation status.  On December 18, 2012, LDC reincorporated under the laws of the State of Delaware as a C-Corporation.  LDC’s main production facilities and its corporate offices are located in Carpinteria, California.  The Company also has wholly owned subsidiaries in Austria (“Video2Brain”), the United Kingdom (“LDC UK”), and Australia (“LDC AUS”).  The Company also consolidates two variable interest entities (“VIEs”), LWBH Holdings, LLC (“LWBH”) and Mission Education Holdings, LLC (“MEH”), as LDC is the primary beneficiary of the VIEs.

 

LDC is an online learning company that provides its subscribers access to a library of video tutorials in the areas of 3D, audio, business, design, developer, photography, video and web.

 

Basis of Presentation

 

The unaudited condensed consolidated financial statements are prepared in conformity with United States generally accepted accounting principles, or GAAP, for interim reporting.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  In the opinion of management, all adjustments, including normal recurring adjustments, necessary for a fair statement of the unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2015 and 2014, have been recorded.  The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2015.  These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2014.

 

There have been no changes to our significant accounting policies described in our audited consolidated financial statements for the fiscal year ended December 31, 2014, that have had a material impact on our unaudited condensed consolidated financial statements and related notes.

 

Principles of Consolidation

 

The unaudited condensed consolidated financial statements include the assets, liabilities, revenues and expenses of all majority-owned subsidiaries over which the Company exercises control, and when applicable, entities for which the Company has a controlling financial interest or is the primary beneficiary.  All significant intercompany transactions and balances have been eliminated in consolidation.

 

4



 

lynda.com, Inc.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

Three Months Ended March 31, 2015 and 2014

 

2.         Summary of Significant Accounting Policies

 

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, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period.  Significant estimates include revenue recognition, determination of the fair value of share-based awards, valuation of common stock, income taxes, collectability of accounts receivable, carrying value and useful lives of property and equipment and intangible assets, determination of the fair value of derivatives, valuation of acquired intangibles and valuation of certain accrued expenses.  By their nature, estimates are subject to an inherent degree of uncertainty and actual results could differ from those estimates.

 

Business Combinations

 

The results of businesses acquired in a business combination are included in the Company’s consolidated financial statements from the date of the acquisition.  Purchase accounting results in assets and liabilities of an acquired business being recorded at their estimated fair values on the acquisition date.  Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill.

 

The Company performs valuations of assets acquired and liabilities assumed for an acquisition and allocates the purchase price to its respective net tangible and intangible assets.  Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates and selection of comparable companies.  The Company engages the assistance of valuation specialists in concluding on fair value measurements in connection with determining fair values of assets acquired and liabilities assumed in a business combination.

 

Transaction costs associated with business combinations are expensed as incurred, and are included in general and administrative expenses in the Unaudited Condensed Consolidated Statements of Operations.

 

Foreign Currency Translation

 

One of the Company’s foreign subsidiaries, Video2Brain, operates with the functional currency as its local currency and is translated into U.S. Dollars in consolidation for reporting purposes.  Assets and liabilities are translated into U.S. Dollars using the period-end exchange rates, and revenue and expenses are translated into U.S. Dollars using average exchange rates for the period.  The effects of foreign currency translation adjustments are included as a component of comprehensive (loss) income in the accompanying Unaudited Condensed Consolidated Balance Sheets.

 

Two foreign subsidiaries, LDC UK and LDC AUS, operate in their local currency, and their functional currency is the U.S. Dollar.  Monetary assets and liabilities of these two foreign subsidiaries are translated into U.S. Dollars using the period-end exchange rates, and revenue and expenses are translated into U.S. Dollars using average exchange rates for the period.  Nonmonetary assets and liabilities are translated into U.S. Dollars at historical rates.  The effects of foreign currency translation adjustments are included in other expense in the accompanying Unaudited Condensed Consolidated Statements of Operations.

 

5



 

lynda.com, Inc.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

Three Months Ended March 31, 2015 and 2014

 

Fair Value of Financial Instruments

 

The carrying amounts of the Company’s financial instruments, which include accounts receivable and accounts payable, approximate their fair value due to their short-term maturities.

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and accounts receivable.  The Company maintains separate cash accounts in a small number of financial institutions.  At times, cash accounts may exceed Federal Deposit Insurance Corporation (“FDIC”) limits.  The Company has not experienced any losses in such accounts.  Management believes that the financial institutions that hold the Company’s cash are financially sound and, accordingly, minimal risk exists with respect to cash.

 

The Company grants credit terms in the normal course of business to certain customers.  The Company regularly monitors collections and payments from customers and maintains allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments.  Estimated losses are based on historical experience and any specific customer collection issues identified.  Bad debt has been minimal.  The Company does not normally require collateral or other security to support credit sales.  No customer accounted for more than 10% of the Company’s revenues or accounts receivable balance for any periods presented.

 

Accounts Receivable

 

Accounts receivable are carried at original invoice amount less an allowance for doubtful accounts.  The allowance is established through a provision for bad debt expense (recovery) which is recorded in general and administrative expense.  The Company determines the adequacy of this allowance by evaluating individual customer accounts receivable balances, through consideration of the customer’s financial condition, credit history and current economic conditions.

 

Property and Equipment

 

Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets, generally two to seven years, with the exception of buildings which have forty-year estimated useful lives.  The Company leases equipment under capital lease arrangements.  The assets and liabilities under capital lease are recorded at the lesser of the present value of aggregate future minimum lease payments, including estimated bargain purchase options, or the fair value of the asset under lease.  Assets under capital lease are depreciated using the straight-line method over the lesser of the estimated useful life of the asset or the term of the lease.

 

Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life.  Costs of maintenance and repairs that do not improve or extend the lives of the respective assets are expensed as incurred.  Upon retirement or sale, the cost and related accumulated depreciation are removed from the Unaudited Condensed Consolidated Balance Sheet and the resulting gain or loss is reflected in the Unaudited Condensed Consolidated Statements of Operations.

 

6



 

lynda.com, Inc.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

Three Months Ended March 31, 2015 and 2014

 

Capitalized Production Costs

 

The Company capitalizes development costs or costs incurred for developing its online content prior to the availability of the product for general release to customers in accordance with Accounting Standards Codification (“ASC”) 926-20, Film Costs.  Capitalized costs include (1) external direct costs of materials and services consumed in developing or obtaining the product, (2) payroll and payroll-related costs for employees who are directly associated with and who devote time to the content development, and (3) other operating costs incurred, when material, while developing the products.  Once the product is completed and put into service, capitalized costs are amortized and recorded in cost of revenues over a period of three years with 50% of the capitalized cost amortized in year one, 30% in year two, and 20% in year three, which approximates the pattern of consumption of the related online content over the estimated useful life.

 

Website Development Costs and Internal Use Software

 

The Company capitalizes eligible costs associated with the development of its website and internal use software in accordance with ASC 350-50, Website Development Costs, and ASC 350-40, Internal Use Software, respectively.  Accordingly, the Company expenses all costs that relate to the planning and post implementation phases.  Capitalized costs include the following costs incurred during the development phase: (1) external direct costs of materials and services consumed in developing or obtaining the software, and (2) payroll and payroll-related costs for employees who are directly associated with and who devote time to the project.  Costs associated with minor enhancements and maintenance for the Company’s website and internal use software are expensed as incurred.  Capitalized costs are amortized and recorded in cost of revenues for website development costs and technology and development for internal use software on a straight-line basis over three years.

 

Acquisition-Related Intangible Assets

 

Acquisition-related intangible assets include the costs of acquired product technology, customer relationships, and trademarks and are being amortized using the straight-line method over their estimated useful lives, which range from two to three years.  The Company reviews intangible assets for impairment when indication of potential impairment exists, such as a significant reduction in cash flows associated with the assets.  Acquisition-related definite-lived intangible assets are presented within intangible assets, net on the Unaudited Condensed Consolidated Balance Sheets.

 

Goodwill

 

Goodwill represents the excess of the purchase price of an acquired entity over the fair value of the net tangible and intangible assets acquired.  The Company accounts for goodwill in accordance with ASC 350, Intangibles—Goodwill and Other, which among other things, addresses financial accounting and reporting requirements for acquired goodwill.  ASC 350 prohibits the amortization of goodwill and requires the Company to test goodwill at the reporting unit level for impairment at least annually.

 

The Company tests the goodwill of its reporting unit for impairment annually during the fourth quarter of its fiscal year and whenever events occur or circumstances change that would more likely than not indicate that the goodwill might be impaired.  Events or circumstances which could trigger an impairment review include, but are not limited to, a significant adverse change in legal factors or in the business climate, unanticipated competition, a loss of key management or other personnel, significant changes in the manner of the Company’s use of the acquired assets or the strategy for the acquired business or the Company’s overall business, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations.

 

7



 

lynda.com, Inc.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

Three Months Ended March 31, 2015 and 2014

 

Testing goodwill for impairment involves a two-step quantitative process.  However, prior to performing the two-step quantitative goodwill impairment test, the Company has the option to first assess qualitative factors to determine whether or not it is necessary to perform the two-step quantitative goodwill impairment test.  If the Company chooses the qualitative option, the Company is not required to perform the two-step quantitative goodwill impairment test unless it has determined, based on the qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.  If the two-step quantitative impairment test is required or chosen, the first step of the impairment test involves comparing the estimated fair value of a reporting unit with its carrying amount, including goodwill.  If the estimated fair value of a reporting unit exceeds its carrying amount, including goodwill, goodwill is considered not to be impaired and no additional steps are necessary.  If, however, the estimated fair value of a reporting unit is less than its carrying amount, including goodwill, then the carrying amount of the goodwill is compared with its implied fair value, which is determined by deducting the aggregate fair value of the reporting unit’s identifiable assets and liabilities from the fair value of the reporting unit, and an impairment loss is recognized in an amount equal to the excess.

 

The process of estimating the fair value of goodwill is subjective and requires the Company to make estimates that may significantly impact the outcome of the analyses.  The Company has identified one reporting unit for purposes of assessing goodwill impairment and the estimated fair value of the identified reporting unit is the business enterprise value at the measurement date.

 

Impairment of Long-Lived Assets

 

The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets, including intangible assets, may warrant revision or that the remaining balance of long-lived assets may not be recoverable in accordance with ASC 360, Property, Plant and Equipment, Accounting for the Impairment or Disposal of Long-Lived Assets, and ASC 926-20, Film Costs.  When factors indicate that long-lived assets should be evaluated for possible impairment, the Company uses an estimate of the related undiscounted future cash flows over the remaining life of the long-lived assets in measuring whether they are recoverable.  If the estimated undiscounted future cash flows are less than the carrying value of the asset, a loss is recorded as the excess of the asset’s carrying value over its fair value.

 

Income Taxes

 

The Company applies the provisions of ASC 740, Income Taxes.  Under ASC 740, the Company accounts for its income taxes using the asset and liability method whereby deferred income tax assets and liabilities are determined based on temporary differences between the basis used for financial reporting and income tax reporting purposes.  Deferred income taxes are provided based on the enacted tax rates and laws that will be in effect at the time such temporary differences are expected to reverse.  A valuation allowance is provided for deferred tax assets if it is more likely than not that the Company will not realize those tax assets through future operations.

 

The Company applies the provisions in ASC 740 with respect to accounting for uncertain tax positions.  ASC 740 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on various related matters such as derecognition, interest, penalties and disclosures required.  The Company includes interest and penalties related to tax contingencies in the provision for income taxes on the Unaudited Condensed Consolidated Statements of Operations if material.

 

8



 

lynda.com, Inc.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

Three Months Ended March 31, 2015 and 2014

 

Revenue Recognition

 

The Company recognizes revenues in accordance with ASC 605, Revenue Recognition, when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed or determinable, no significant Company obligations remain, and collectibility is reasonably assured.

 

The Company’s revenues are primarily subscription based.  Subscription revenues are earned by providing access to its online training library (“OTL”).  Subscription revenues are recognized ratably over the period for which subscription services are provided, ranging from one month to three years.  Customers generally pay in full at the beginning of the subscription period.  Deferred revenue represents the amount of subscription services that have yet to be delivered and recognized.

 

Costs of Revenues

 

Costs of revenues consist primarily of amortization of capitalized production costs (including production department payroll related expenses) and website development costs, royalty expense and credit card processing fees.  Authors of published courses are paid a royalty based on usage of their course, which represents the number of times the courses are viewed.

 

Comprehensive (Loss) Income

 

Comprehensive (loss) income is composed of net (loss) income and foreign currency translation adjustments.

 

Technology and Development Costs

 

Other than capitalized production costs and website development costs, all other costs related to technology and development are expensed as incurred.

 

Share-Based Compensation

 

The Company recognizes compensation expense related to employee option grants in accordance with ASC 718, Compensation—Stock Compensation (“ASC 718”).

 

The Company estimates the fair value of employee share-based payment awards on the grant-date and recognizes the resulting fair value, net of estimated forfeitures, over the requisite service period.  The Company uses the Black-Scholes option pricing model for estimating the fair value of options granted under the Company’s stock option plans.  The Company has elected to treat share-based payment awards with graded vesting schedules and time-based service conditions as a single award and recognizes share-based compensation on a straight-line basis, net of estimated forfeitures, over the requisite service period.

 

The Black-Scholes option pricing model requires the Company to make certain assumptions including the fair value of the underlying common stock, the expected term, the expected volatility, the risk-free interest rate and the dividend yield.

 

Share-based compensation expense is recognized based on awards that are ultimately expected to vest, and as a result, the amount has been reduced by estimated forfeitures.  Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.  Forfeitures are estimated based on the Company’s historical experience and future expectations.

 

9



 

lynda.com, Inc.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

Three Months Ended March 31, 2015 and 2014

 

New Accounting Principles

 

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-15, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, which provides guidance to customers about whether a cloud computing arrangement includes a software license.  If a cloud computing arrangement includes a software license, then the customer should account for the arrangement for the software license element of the arrangement consistent with the acquisition of other software licenses.  If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract.  The standard is effective for annual periods beginning after December 15, 2015, and interim periods within those fiscal years.  Early adoption is permitted for all entities.  An entity may choose to adopt the new standard either retrospectively or prospectively.  The Company is currently evaluating the expected impact of this new standard on its cloud computing arrangements in its unaudited condensed consolidated financial statements.

 

In February 2015, the FASB issued ASU 2015-02, Consolidation — Amendments to the Consolidation Analysis, which amends the current consolidation guidance and ends the deferral granted to investment companies from applying the variable interest entity (VIE) guidance.  The standard will be effective for fiscal years beginning after December 15, 2015.  Early adoption is permitted.  The Company is currently evaluating the expected impact of this new standard.

 

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which explicitly requires management to assess an entity’s ability to continue as a going concern in connection with each annual and interim period.  Management will assess if there is substantial doubt about an entity’s ability to continue as a going concern within one year of the date the financial statements are issued.  Disclosures will be required if conditions give rise to substantial doubt.  The standard will be effective for the first annual period ending after December 15, 2016.  Early adoption is permitted.  The Company does not expect the adoption of this ASU to have a material impact on the unaudited condensed consolidated financial statements.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which is intended to improve and converge the financial reporting requirements for revenue from contracts with customers between U.S. GAAP and International Accounting Standards.  In accordance with this new standard, an entity would recognize revenue to depict the transfer of promised goods or services.  The standard establishes a five-step model and related application guidance, which will replace most existing revenue recognition guidance in U.S. GAAP.  The standard will be effective for annual and interim periods in fiscal years beginning after December 15, 2017.  Early adoption is not permitted.  An entity may choose to adopt the new standard either retrospectively or through a cumulative effect adjustment as of the start of the first period for which it applies the new standard.  The Company is currently evaluating the expected impact of this new standard on its reporting of revenue contracts in its unaudited condensed consolidated financial statements.

 

3.         Goodwill

 

The changes in goodwill for the three months ended March 31, 2015 were as follows:

 

Balance at December 31, 2014

 

$

7,372,000

 

Currency translation

 

(651,000

)

Balance at March 31, 2015

 

$

6,721,000

 

 

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lynda.com, Inc.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

Three Months Ended March 31, 2015 and 2014

 

4.         Assets Held for Sale

 

In November 2013, the Board of Directors approved the disposition of a property owned by Mission Education Holdings, LLC, a variable interest entity (MEH).  In February 2014, the property was sold for $6,125,000, resulting in the repayment of the related debt and the intercompany loan agreement between LDC and MEH.  The associated interest rate swap agreement with Wells Fargo Bank was settled for $101,000 and the related change in fair value of $6,000 is included as a decrease to interest expense for the three months ended March 31, 2014.

 

5.         Commitments and Contingencies

 

Legal Matters

 

There are no legal matters or claims that have arisen from the normal course of business that would have a material impact on the Company’s financial position, results of operations or cash flows.

 

6.         Stock Option Plan and Share-Based Compensation

 

The Company recorded share-based compensation cost in the following categories on the accompanying Unaudited Condensed Consolidated Statements of Operations:

 

 

 

Three Months Ended March 31,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Costs of revenues

 

$

13,000

 

$

8,000

 

Technology and development

 

96,000

 

131,000

 

Sales and marketing

 

211,000

 

68,000

 

General and administrative

 

408,000

 

365,000

 

Total share-based compensation cost

 

$

728,000

 

$

572,000

 

 

The following table summarizes share activity for the three months ended March 31, 2015:

 

 

 

Number of

 

 

 

Options

 

 

 

Outstanding

 

 

 

 

 

Outstanding at December 31, 2014

 

18,572,659

 

Granted

 

2,039,360

 

Exercised

 

(70,912

)

Forfeited

 

(433,476

)

Outstanding at March 31, 2015

 

20,107,631

 

 

7.         Restructuring Costs

 

In March 2013, the Company recorded $1,128,000 in costs associated with involuntary termination benefits, in accordance with ASC 420, Exit or Disposal Cost Obligations.  At December 31, 2013, $50,000 of the involuntary termination benefits were accrued but unpaid.  During the three months ended March 31, 2014, the Company paid the remaining $50,000 of involuntary benefits.

 

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lynda.com, Inc.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

Three Months Ended March 31, 2015 and 2014

 

8.         Income Taxes

 

The Company calculates the interim income tax provision in accordance with ASC 270, Interim Reporting, and ASC 740, Accounting for Income Taxes.  At the end of each interim period, the Company estimates the annual effective tax rate and applies that rate to ordinary quarterly earnings.  The tax expense or benefit related to significant, unusual, or extraordinary items is recognized in the interim period in which those items occur.  In addition, the effect of changes in enacted tax laws, rates, or tax status is recognized in the interim period in which the change occurs.

 

The Company’s provision for income taxes for the quarter ended March 31, 2015 and 2014 differed from the U.S. federal statutory tax rate of 34% primarily due to state income taxes and various permanent items, including disallowed incentive stock option expense and meals and entertainment.  This was partially offset by a decrease in valuation allowance to the extent that deferred tax assets were expected to be realizable as a result of forecasted full year income as of the respective quarters.

 

The Company does not have material reserves for uncertain tax positions nor does it believe it to be reasonably possible that the total amount of uncertain tax benefits will significantly increase or decrease within the next 12 months.  The Company is open to United States federal, state and local, or foreign income tax examinations for years commencing with the year ended December 31, 2009.  As of the date of these financial statements, the Company is currently not under any income tax examinations in any jurisdictions.

 

9.         Subsequent Events

 

Since March 31, 2015, the Company has issued stock options for 855,250 shares of common stock.

 

On April 11, 2015, the Board of Directors approved an Agreement and Plan of Merger with LinkedIn, whereby the Company’s shareholders would receive consideration of $1.5 billion, plus 50% of cash at close, adjusted for final net working capital and specified liabilities within 90 days.  The consideration is subject to an 8% escrow, to be released within 12 months, absent any claims.  The merger is expected to close in May 2015.

 

The Company evaluated all subsequent events through May 13, 2015, the issuance date of these financial statements.

 

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