Nature of Operations and Basis of Presentation (Policies)

9 Months Ended

Sep. 30, 2017

The Company has historically performed its annual goodwill impairment test as of September 30 of each year. For the annual impairment test as of September 30, 2016, the Company performed a qualitative assessment of whether it was more likely than not that the Company’s reporting unit's fair value was less than its carrying amount. After completing the assessment, the Company determined that it was more likely than not that the estimated fair value of the reporting unit exceeded the carrying amount and that no impairment existed as of the assessment date. If the Company had concluded otherwise, a quantitative goodwill impairment test would have been required, which would have included a determination of the fair value of the reporting unit and a comparison of the fair value to its carrying value.

Effective for the annual goodwill impairment test for 2017 and for future testing, the Company will perform the required annual test as of October 1 of each year rather than on September 30. The Company does not believe that the change in the date of the annual goodwill impairment test is a material change in the method of applying an accounting principle nor does it expect that it will result in any delay, acceleration or impact to the results of the impairment testing. The Company believes this date is preferable because it aligns with the timing of the annual planning process which largely occurs during the fourth quarter. Retrospective application to prior periods is impracticable as the Company is unable to objectively determine, without the use of hindsight, the assumptions that would be used in those earlier periods. Other than the anticipated change in the date of its annual goodwill impairment test, there have been no other changes to any other significant accounting policy as further described in “Note 2—Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” in the Annual Report.

Other Comprehensive Income

Other comprehensive income represents foreign currency translation adjustments arising from the use of differing exchange rates from period to period and the change in the fair value of the derivatives which are designated as a cash flow hedges. The financial positions and results of operations of the Company’s foreign subsidiaries are based on the local currency as the functional currency and are translated to U.S. dollars for financial reporting purposes. Assets and liabilities of the subsidiaries are translated at the exchange rate in effect at each period-end. Income statement accounts are translated at the average rate of exchange prevailing during the period. Translation adjustments are included in accumulated other comprehensive income (“AOCI”) in stockholders’ equity in the Company’s consolidated balance sheets.

The activity included in other comprehensive income (loss) in the Company’s consolidated statements of comprehensive income for each period reported is as follows:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2017		2016				2017		2016
Foreign currency translation adjustments	$	330	$	(165	)	$		2,802	$	(3,108	)
Change in fair value of derivative designated as cash flow hedge		228	—			228			—
Other comprehensive income (loss), net of tax ⁽¹⁾	$	558	$	(165	)	$		3,030	$	(3,108	)

(1)	Net of tax of $0.6 million and $1.6 million for the three months ended September 30, 2017 and 2016, respectively, and $1.3 million and $3.0 million for the nine months ended September 30, 2017 and 2016, respectively.

Recent Accounting Pronouncements

Recent Accounting Pronouncements Not Yet Adopted

Revenue Recognition

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 provides a single comprehensive revenue recognition framework and supersedes existing revenue recognition guidance. Included in the new principles-based revenue recognition model are changes to the basis for determining the timing for revenue recognition. In addition, the standard expands and improves revenue disclosures. In August 2015, the FASB issued ASU 2015-14 to amend ASU 2014-09 in order to defer the effective date of the new standard. In accordance with this update, the Company elected to adopt the requirements of the new standard effective January 1, 2018.

The Company has evaluated the impact of the new guidance on the timing of revenue and expanded disclosure requirements. The Company has concluded that, for the majority of its contracts, there is no change in the timing of revenue recognition. However, the new standard will result in a change in revenue timing for performance incentives under certain contracts. Under current guidance, performance incentives are recognized as revenue when specific quantitative goals are achieved, generally at the end of a measurement period. Under the new standard, these incentives are considered variable consideration and the Company will include the most likely amount of the priced incentives to be earned and recognize revenue associated with the incentives over the term of the agreement. This change is not expected to result in a material change to the Company’s annual revenue since most incentives have a one-year measurement period which is aligned with the Company’s fiscal year, but the change may accelerate revenue recognized on a quarterly basis. Adoption and successful implementation of the new standard will include modifying existing policies, processes and controls as they relate to revenue recognition as well as to the preparation of the required disclosures.

The Company intends to adopt the standard using the modified retrospective transition method. Under the modified retrospective approach, the new standard will, for the period beginning January 1, 2018, apply to new contracts and those that were not completed as of January 1, 2018. For those contracts not completed as of January 1, 2018, this method will result in a cumulative catch-up adjustment to retained earnings. Prior periods will not be retrospectively adjusted, but the Company will maintain dual reporting for the year of initial application in order to disclose the effect on revenue of adopting the new guidance.

Leases

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This update revises an entity’s accounting for operating leases and requires lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. This update also requires that lessees recognize assets and liabilities on the balance sheet for the rights and obligations created by all such leases and requires disclosures designed to give financial statement users information on the amount and timing of lease expenses arising from such leases. These disclosures include certain qualitative and specific quantitative disclosures. For lessees, the new guidance is not expected to significantly change the recognition, measurement, and presentation of expenses arising from a lease. This update is effective for the first interim and annual periods beginning after December 15, 2018, with early adoption permitted.

The Company continues to evaluate the impact of adopting ASU 2016-02, the elections to be made at adoption in a modified retrospective approach, and the timing of adoption.

Goodwill

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350), which simplifies the measurement of goodwill during the preparation of a goodwill impairment test in the event that there is evidence of an impairment based on qualitative or quantitative assessments. ASU 2017-04 does not change how the goodwill impairment is identified, and the Company will continue to perform a qualitative assessment annually to determine whether the two-step impairment test is required. The current accounting standard requires the impairment loss to be recognized under Step 2 of the impairment test. This requires the Company to determine whether the carrying amount of the reporting unit’s goodwill exceeds its implied fair value. The implied fair value is calculated by assigning the fair value of the reporting unit to all of its assets and liabilities as if it had been acquired in a business combination. The new standard would require the Company to determine the fair value of the reporting unit and subtract the carrying value from the fair value of the reporting unit to determine if there is an impairment. ASU 2017-04 is effective for the Company for fiscal years after December 15, 2019, and early adoption is permitted. ASU 2017-04 is required to be adopted prospectively and the adoption is effective for annual goodwill impairment tests performed in the year of adoption.

The Company continues to evaluate the impact of adopting ASU 2017-04, but does not anticipate the changes to have a material impact on its consolidated financial statements.

Derivative and Hedging

In August 2017, the FASB issued ASU 2017-12: Derivatives and Hedging (Topic 815) (ASU 2017-12). ASU 2017-12’s objective is to improve the financial reporting of an entity’s hedges and better aligns an entity’s hedge accounting with the entity’s risk management strategies, as well as simplify the current hedge accounting guidance. ASU 2017-12 is effective for the Company for fiscal years after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, and all elections should be applied to hedges existing on the date of adoption. The Company is evaluating the impact of ASU 2017-12 on its consolidated financial statements resulting from the adoption of the standard.