RECENT ACCOUNTING PRONOUNCEMENTS

Recently Issued Pronouncements

In February 2016, the FASB issued guidance regarding both operating and financing leases, requiring lessees to recognize on their balance sheets "right-of-use assets" and corresponding lease liabilities, measured on a discounted basis over the lease term. Virtually all leases will be subject to this treatment except leases that meet the definition of a "short-term lease". For expense recognition, the dual model requiring leases to be classified as either operating or finance leases has been retained from the prior standard. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern. Lease classification will use criteria very similar to those applied in current lease accounting, but without explicit bright lines. Extensive additional quantitative and qualitative disclosures, including significant judgments made by management, will be required to provide greater insight into the extent of expense recognized and expected to be recognized. The new lease guidance will essentially eliminate off-balance sheet financing. The guidance is effective for the Company's fiscal year ending March 31, 2020. The new standard must be adopted using a modified retrospective transition that provides for certain practical expedients and requires the new guidance to be applied effectively as of the earliest period presented and through the comparative periods in the entity's financial statements. The Company expects adoption of this guidance will materially increase the assets and liabilities recorded on its consolidated balance sheets, but is still evaluating the impact on its consolidated financial statements and related disclosures.

In June 2016, the FASB issued guidance regarding the measurement of credit losses on financial instruments, which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. The guidance is effective for the Company's fiscal year ending March 31, 2021 with early adoption permitted beginning in the first quarter of Fiscal Year 2020. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements and related disclosures.

Recently Adopted Pronouncement

Except for the changes below, the Company has consistently applied the accounting policies to all periods presented in these consolidated financial statements. The Company adopted Topic 606 Revenue from Contracts with Customers to all contracts not completed as of the initial application date of April 1, 2018. Topic 606 also includes Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers, which requires the deferral of incremental costs of obtaining a contract with a customer. As a result, the Company has changed its accounting policy for revenue recognition as detailed below. The Company applied Topic 606 using the modified retrospective method - i.e. by recognizing the cumulative effect of initially applying Topic 606 as an adjustment to the opening balance of retained earnings at April 1, 2018. Therefore, the comparative information has not been adjusted and continues to be reported in accordance with its historic accounting under Topic 605. The details of the notable changes and quantitative impact of the changes are set out below.

•

Software Revenue: The Company historically deferred revenue for the value of software where vendor specific objective evidence ("VSOE") of fair value had not been established for undelivered items. Under Topic 606, revenue for such licenses is recognized at the time of delivery, rather than ratably, as the VSOE requirement no longer applies and the value of the remaining services are not material in the context of the contract. All deferred revenue pertaining to such licenses was eliminated as a cumulative effect adjustment of implementing the new standard.

•

Marketing Development Funds: The Company frequently provides marketing development funds to its distributor and retail customers. Historically, its marketing development funds were recognized as a reduction of revenue at the later of when the related revenue is recognized or when the program is offered to the channel partner. Applying the criteria of Topic 606, these marketing development programs qualify as variable consideration, and are assigned as a reduction of the transaction price of the contract. This results in a timing difference such that all or some of the funds related to a program may be recognized in different periods than under Topic 605, depending on the circumstances.

•

Discount, Rebates and Pricing Reserves: The Company establishes reserves for Discounts and Rebates at the end of each fiscal period. These reserves are estimated based on current relevant and historical data, but there can be some variability associated with unforeseen changes in customer claim patterns. Under Topic 606, in cases where there is uncertainty around the variable consideration amount, a constraint on that consideration must be considered. The impact of this constraint may result in slightly higher reserves than were recorded under the legacy methodology.

The Company has historically recorded reserves for customer-related pricing protection which is based on contractual terms and the legal interpretation thereof. Topic 606 prescribes an “expected value” method to estimating variable consideration which involves the sum of probability-weighted amounts for a range of possible outcomes. Applying this method may result in a slightly lower reserve than the reserves under legacy methodology.

Additionally, the balance sheet presentation of certain reserve balances previously shown net within accounts receivable are now presented as refund liabilities within current liabilities.

On July 2, 2018 the Company acquired Polycom, a privately held Company who had not yet adopted Topic 606. In addition to increasing the magnitude of certain of the items listed above, the acquisition introduced several additional areas of impact. The most notable areas of impact are:


•	Term Licenses: Legacy accounting standards required that revenue for term-based software licenses be recognized ratably when VSOE of fair value had not been established for undelivered items such as post-contract support. Under Topic 606, revenue for such licenses is recognized at the time of delivery, rather than ratably, as the VSOE requirement no longer applies.

•

Cost of Obtaining a Contract: Under legacy guidance, in certain circumstances an entity could have elected to capitalize direct and incremental contract acquisition costs, such as sales commissions. Under Topic 606 and related guidance, an entity is required to capitalize costs that are incremental to obtaining a contract if it expects to recover them, unless it elects the practical expedient for costs with amortization periods of one year or less. This new provision affects the Company as it will capitalize those costs if the anticipated amortization period is greater than one year and the criteria have been met.

The cumulative effect of the changes made to the Company's consolidated April 1, 2018 balance sheet for the adoption of Topic 606 was as follows (in thousands):



	March 31, 2018		Adjustments due to Topic 606 (increase/(decrease))			April 1, 2018
ASSETS
Current assets:
Accounts receivable, net	$	152,888	$	14,221		$	167,109
Total current assets	899,726		14,221			913,947
Deferred tax assets	17,950		(493		)	17,457
Total assets	$	1,076,887	$	13,728		$	1,090,615

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued liabilities	$	80,097	$	11,133		$	91,230
Total current liabilities	125,514		11,133			136,647
Total liabilities	723,917		11,133			735,050
Commitments and contingencies (Note 7)
Stockholders' equity:
Retained earnings	299,066		2,595			301,661
Total stockholders' equity before treasury stock	1,179,397		2,595			1,181,992
Total stockholders' equity	352,970		2,595			355,565
Total liabilities and stockholders' equity	$	1,076,887	$	13,728		$	1,090,615

The following tables summarize the impacts of adopting Topic 606 on the Company’s condensed consolidated balance sheet as of December 31, 2018:



	December 31, 2018 As Reported		Adjustments due to Topic 606 (increase/(decrease))			December 31, 2018 Without Adoption of Topic 606
ASSETS
Current assets:
Accounts receivable, net	$	363,837	$	(91,135	)	$	272,702
Other current assets	48,229		(467		)	47,762
Total current assets	913,863		(91,602		)	822,261
Other assets	22,821		(1,652		)	21,169
Total assets	$	3,297,781	$	(93,254	)	$	3,204,527

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued liabilities	$	452,194	$	(82,362	)	$	369,832
Total current liabilities	598,261		(82,362		)	515,899
Other long-term liabilities	134,492		(1,766		)	132,726
Total liabilities	2,553,563		(84,129		)	2,469,434
Commitments and contingencies (Note 7)
Stockholders' equity:
Retained earnings	170,861		(9,125		)	161,736
Total stockholders' equity before treasury stock	1,589,289		(9,125		)	1,580,164
Total stockholders' equity	744,218		(9,125		)	735,093
Total liabilities and stockholders' equity	$	3,297,781	$	(93,254	)	$	3,204,527

The following tables summarize the impacts of adopting Topic 606 on the Company’s condensed consolidated financial statements for the three months ended December 31, 2018:



CONSOLIDATED STATEMENTS OF OPERATIONS Selected Line Items (in thousands) (Unaudited)
	December 31, 2018 as Reported			Adjustments due to Topic 606 (increase/(decrease))			December 31, 2018 Without Adoption of Topic 606
Net revenues
Net product revenues	$	445,441		$	(3,044	)	$	442,397
Net service revenues	56,228			86			56,314
Total net revenues	501,669			(2,958		)	498,711
Gross profit	215,137			(2,958		)	212,179
Operating expenses:
Selling, general, and administrative	168,053			1,031			169,084
Total operating expenses	239,844			1,031			240,875
Operating loss	(24,707		)	(3,989		)	(28,696		)
Loss before income taxes	(49,614		)	(3,989		)	(53,603		)
Income tax expense (benefit)	(7,880		)	(716		)	(8,596		)
Net loss	$	(41,734	)	$	(3,273	)	$	(45,007	)

Loss per common share:
Basic	$	(1.06	)	$	(0.08	)	$	(1.14	)
Diluted	$	(1.06	)	$	(0.08	)	$	(1.14	)

The following tables summarize the impacts of adopting Topic 606 on the Company’s condensed consolidated financial statements for the nine months ended December 31, 2018:



CONSOLIDATED STATEMENTS OF OPERATIONS Selected Line Items (in thousands) (Unaudited)
	December 31, 2018 As Reported			Adjustments due to Topic 606 (increase/(decrease))			December 31, 2018 Without Adoption of Topic 606
Net revenues
Net product revenues	$	1,102,012		$	(5,626	)	$	1,096,386
Net service revenues	104,035			167			104,202
Total net revenues	1,206,047			(5,459		)	1,200,588
Gross profit	477,609			(5,459		)	472,150
Operating expenses
Selling, general, and administrative	406,553			1,901			408,454
Total operating expenses	567,643			1,901			569,544
Operating loss	(90,034		)	(7,360		)	(97,394		)
Loss before income taxes	(142,555		)	(7,360		)	(149,915		)
Income tax expense (benefit)	(28,583		)	(1,273		)	(29,856		)
Net loss	$	(113,971	)	$	(6,087	)	$	(120,058	)

Loss per common share:
Basic	$	(3.08	)	$	(0.16	)	$	(3.24	)
Diluted	$	(3.08	)	$	(0.16	)	$	(3.24	)

The following tables summarize the impacts of adopting Topic 606 on the Company’s condensed consolidated statement of comprehensive loss for the three months ended December 31, 2018:



CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Selected Line Items (in thousands) (Unaudited)
	December 31, 2018 as Reported			Adjustments due to Topic 606 (increase/(decrease))			December 31, 2018 Without Adoption of Topic 606
Net loss	$	(41,734	)	$	(3,273	)	$	(45,007	)
Comprehensive loss	$	(46,370	)	$	(3,273	)	$	(49,643	)

The following tables summarize the impacts of adopting Topic 606 on the Company’s condensed consolidated statement of comprehensive loss for the nine months ended December 31, 2018:



CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Selected Line Items (in thousands) (Unaudited)
	December 31, 2018 as Reported			Adjustments due to Topic 606 (increase/(decrease))			December 31, 2018 Without Adoption of Topic 606
Net loss	$	(113,971	)	$	(6,087	)	$	(120,058	)
Comprehensive loss	$	(115,808	)	$	(6,087	)	$	(121,895	)

Adoption of the standards related to revenue recognition had no impact to cash from or used in operating, financing, or investing on the Company's condensed consolidated cash flows statements.

In January 2016, the FASB issued guidance regarding the recognition and measurement of financial assets and liabilities. Changes to the current U.S. GAAP model primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The Company adopted the standard in the first quarter of its fiscal year ending March 31, 2019. The adoption of this standard had no material impact on the Company's consolidated financial statements and related disclosures.

In May 2017, the FASB issued guidance that clarifies the scope of modification accounting with respect to changes to the terms or conditions of a share-based payment award. This guidance is effective for the Company's fiscal year ending March 31, 2019, including interim periods within that year. The Company adopted the standard in the first quarter of its fiscal year ending March 31, 2019. The adoption of this standard had no impact on the Company's consolidated financial statements and related disclosures.