Significant Accounting Policies

The following describes our significant accounting policies that have been followed in preparing the accompanying consolidated financial statements.

Principles of Consolidation

Prior to the Distribution, BKFS LLC was subject to the consolidation guidance related to variable interest entities as set forth in Accounting Standards Codification ("ASC") Topic 810, Consolidation ("ASC 810"). As the sole managing member of BKFS LLC, we had the exclusive authority to manage, control and operate the business and affairs of BKFS LLC and its subsidiaries, pursuant to the terms of the limited liability company agreement ("LLC Agreement"). Under the terms of the LLC Agreement, we were authorized to manage the business of BKFS LLC, including the authority to enter into contracts, manage bank accounts, hire employees and agents, incur and pay debts and expenses, merge or consolidate with other entities and pay taxes. Because we were the primary beneficiary through our sole managing member interest and possessed the rights established in the LLC Agreement, in accordance with the requirements of ASC 810, we controlled BKFS LLC and appropriately consolidated the operations thereof.

We accounted for noncontrolling interests in accordance with ASC 810 prior to the Distribution. Noncontrolling interests represented BKHI and certain of its affiliates' and THL and certain THL affiliates ("THL Affiliates")' share of net earnings or loss and of equity in BKFS LLC. BKFS Class A shareholders indirectly controlled BKFS LLC through our managing member interest. BKFS Class B shareholders had a noncontrolling interest in BKFS LLC. Their share of equity in BKFS LLC is reflected in Noncontrolling interests in our Consolidated Balance Sheets and their share of net earnings or loss in BKFS LLC is reported in Net earnings attributable to noncontrolling interests in our Consolidated Statements of Earnings and Comprehensive Earnings. Net earnings or loss attributable to noncontrolling interests do not include expenses incurred directly by us, including income tax expense attributable to us.

Subsequent to the distribution, BKFS LLC is an indirect wholly-owned subsidiary of BKI. As a result, we no longer have any noncontrolling interests in BKFS LLC.

Management Estimates

The preparation of these consolidated financial statements in conformity with GAAP 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from our estimates.

Cash and Cash Equivalents

Highly liquid instruments purchased with original maturities of three months or less are considered cash equivalents. Cash equivalents are invested with high credit quality financial institutions and consist of short-term investments, such as demand deposit accounts, money market accounts, money market funds and time deposits. The carrying amounts of these instruments reported in the Consolidated Balance Sheets approximate their fair value because of their immediate or short-term maturities.

Cash and cash equivalents consists of the following (in millions):



	December 31,
	2018		2017
Unrestricted:
Cash	$	9.5	$	13.1
Cash equivalents	10.8		1.3
Unrestricted cash and cash equivalents	20.3		14.4
Restricted cash equivalents (1)	—		1.8
Cash and cash equivalents	$	20.3	$	16.2

_______________


(1)	Restricted cash equivalents related to our former subsidiary, I-Net Reinsurance Limited, were held in trust until the final reinsurance policy expired.

Trade Receivables, Net

The carrying amounts reported in the Consolidated Balance Sheets for Trade receivables, net approximate their fair value because of their short-term nature.

A summary of Trade receivables, net of allowance for doubtful accounts is as follows (in millions):



	December 31,
	2018			2017
Trade receivables — billed	$	136.6		$	159.6
Trade receivables — unbilled	37.0			44.1
Trade receivables	173.6			203.7
Allowance for doubtful accounts	(1.3		)	(1.9		)
Trade receivables, net	$	172.3		$	201.8

In addition to the amounts above, we have unbilled receivables that we do not expect to collect within the next year included in Other non-current assets in our Consolidated Balance Sheets. Billings for these receivables are based on contractual terms. Refer to Note 10 — Other Non-Current Assets.

The allowance for doubtful accounts represents management's estimate of those balances that are uncollectible as of the balance sheet date. We determine the allowance based on known troubled accounts, historical experience and other currently available evidence. We write off trade receivables when the likelihood of collection of a trade receivable balance is considered remote.

The rollforward of allowance for doubtful accounts is as follows (in millions):



	Year ended December 31,
	2018			2017			2016
Beginning balance	$	(1.9	)	$	(2.2	)	$	(2.5	)
Bad debt expense	(0.6		)	(0.8		)	(0.6		)
Write-offs, net of recoveries	1.2			1.1			0.9
Ending balance	(1.3		)	(1.9		)	(2.2		)

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consists of the following (in millions):



	December 31,
	2018		2017
Prepaid expenses	$	43.9	$	36.1
Contract assets	14.8		—
Other current assets	8.6		8.5
Prepaid expenses and other current assets	$	67.3	$	44.6

Contract Assets

A contract asset represents our expectation of receiving consideration in exchange for products or services that we have transferred to our client. Contract assets and liabilities, or deferred revenues, are determined and netted at the contract level since the rights and obligations in a contract with a client are interdependent. In contrast, a receivable is our right to consideration that is unconditional except for the passage of time required before payment of that consideration is due. The difference in timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables, contract assets and deferred revenues from client advances and deposits. We account for receivables in accordance with ASC Topic 310, Receivables (“ASC 310”), and assess both contract assets and receivables for impairment in accordance with ASC 310. There were no impairment charges related to contract assets for the year ended December 31, 2018.

Our short-term contract assets, including related party contract assets, are included in Prepaid expenses and other current assets in our Consolidated Balance Sheets. Refer to Note 5 — Related Party Transactions. Our long-term contract assets are included in Other non-current assets in our Consolidated Balance Sheets. Refer to Note 10 — Other Non-Current Assets.

Property and Equipment, Net

Property and equipment, net is recorded at cost, less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method based on the following estimated useful lives of the related assets: 30 years for buildings and 3 to 7 years for furniture, fixtures and computer equipment. Leasehold improvements are amortized using the straight-line method over the lesser of the initial term of the respective lease or the estimated useful life of such asset.

Computer Software, Net

Computer software, net includes the fair value of software acquired in business combinations, purchased software and internally developed software, less accumulated amortization. Purchased software is recorded at cost and amortized using the straight-line method over its estimated useful life, ranging from 3 to 7 years. Software acquired in business combinations is recorded at its fair value and amortized using the straight-line method over its remaining estimated useful life.

Internal development costs are accounted for in accordance with ASC Topic 985, Software, Subtopic 20, Costs of Software to Be Sold, Leased, or Marketed, or ASC Topic 350, Intangibles - Goodwill and Other, Subtopic 40, Internal-Use Software. For computer software products to be sold, leased or marketed, all costs incurred to establish the technological feasibility are research and development costs and are expensed as they are incurred. Costs incurred subsequent to establishing technological feasibility, such as programmers salaries, related payroll costs and costs of independent contractors, are capitalized and amortized on a product-by-product basis commencing on the date of general release to customers. We do not capitalize any costs once the product is available for general release to customers. Amortization expense is recorded using the straight-line method over the estimated software life, which generally ranges from 5 to 10 years. We also assess the recorded value for impairment on a regular basis by comparing the carrying value to the estimated future cash flows to be generated by the underlying software asset.

For internal-use computer software products, internal and external costs incurred during the preliminary project stage are expensed as they are incurred. Internal and external costs incurred during the application development stage are capitalized and amortized on a product-by-product basis commencing on the date the software is ready for its intended use. We do not capitalize any costs once the software is ready for its intended use. Amortization expense is recorded ratably over the software's estimated useful life, generally ranging from 5 to 7 years.

Other Intangible Assets, Net

Other intangible assets, net consist primarily of customer relationships that are recorded in connection with acquisitions at their fair value based on the results of a valuation analysis, less accumulated amortization. Customer relationships are amortized over their estimated useful lives using an accelerated method that takes into consideration expected customer attrition rates over a period of up to 10 years from the acquisition date.

Our property records database, which is an intangible asset not subject to amortization, is included in Other non-current assets in our Consolidated Balance Sheets. Refer to Note 10 — Other Non-Current Assets.

Impairment Testing

Long-lived assets, including property and equipment, computer software and other intangible assets with definite useful lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. We did not have any events or circumstances indicating impairment of our long-lived assets for the years ended December 31, 2018, 2017 or 2016.

Goodwill

Goodwill represents the excess of cost over the fair value of identifiable assets acquired and liabilities assumed in business combinations. Goodwill is not amortized and is tested for impairment annually, or more frequently if circumstances indicate potential impairment, through a comparison of fair value to the carrying amount. Goodwill is tested for impairment at the reporting unit level. In evaluating the recoverability of goodwill, we consider the amount of excess fair value over the carrying value of each reporting unit, the period of time since a reporting unit's last quantitative test, and other factors to determine whether or not to first perform a qualitative test. When performing an annual goodwill impairment analysis based on a review of qualitative factors, we evaluate if events and circumstances exist that lead to a determination that the fair value of each reporting unit is more likely than not greater than its carrying amount. If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative impairment test. The quantitative test includes determining the fair value of a reporting unit based on a weighted average of multiple valuation methods, primarily a combination of an income approach and a market approach, which are Level 3 and Level 2 inputs, respectively. The income approach includes the present value of estimated future cash flows, while the market approach uses earnings multiples of similar guideline public companies. If the fair value of a reporting unit exceeds its carrying amount, goodwill is not impaired and further testing is not required. We did not have any events or circumstances indicating impairment of our goodwill during the years ended December 31, 2018, 2017 and 2016.

Deferred Contract Costs

We capitalize incremental contract acquisition costs that relate directly to an existing contract or a specific anticipated contract, and are expected to be recovered. Costs that would have been incurred regardless of whether the contract was obtained are expensed as incurred. As a practical expedient, we expense incremental costs of obtaining a contract if the amortization period of the asset would be one year or less.

We also consider whether to capitalize costs to fulfill a contract that may be incurred before we commence performance on an obligation. These costs represent incremental, recoverable external costs and certain internal costs that are directly related to the contract and are primarily associated with costs of resources involved in installation of systems, processes and data conversion.

Deferred contract costs are amortized on a systematic basis consistent with the transfer to the client of the goods or services to which the asset relates. We consider the explicit term of the contract with the client, expected renewals and the rate of change related to our solutions in determining the amortization period, which ranges from 5 to 10 years.

In the event indications exist that a deferred contract cost balance related to a particular contract may not be recoverable, undiscounted estimated cash flows of the total period over which economic benefits for providing the related products or services are expected to be received are projected and compared to the unamortized deferred contract cost balance. If the projected cash flows and any unrecognized revenues are not adequate to recover the unamortized cost balance, the balance would be adjusted with a charge to earnings to reduce the carrying amount to the contract's net realizable value, including any termination fees provided for under the contract, in the period such a determination is made.

Our deferred contract costs are included in Other non-current assets in our Consolidated Balance Sheets. Refer to Note 10 — Other Non-Current Assets. Amortization expense for deferred contract costs is included in Depreciation and amortization in our Consolidated Statements of Earnings and Comprehensive Earnings. Refer to the "Depreciation and Amortization" section below.

Trade Accounts Payable and Other Accrued Liabilities

The carrying amount reported in the Consolidated Balance Sheets for Trade accounts payable and other accrued liabilities approximates fair value because of their short-term nature.

Loss Contingencies

ASC Topic 450, Contingencies, requires that we accrue for loss contingencies associated with outstanding litigation, claims and assessments, as well as unasserted claims for which management has determined it is probable that a loss contingency exists and the amount of loss can be reasonably estimated. Refer to Note 13 — Commitments and Contingencies.

Deferred Compensation Plan

Prior to the Distribution, certain of our management level employees and directors participated in the FNF Deferred Compensation Plan (the "FNF DCP"). The FNF DCP permitted participants to defer receipt of part of their current compensation. Participant benefits for the FNF DCP were provided by a funded rabbi trust. The compensation withheld from FNF DCP participants, together with investment income on the FNF DCP, was recorded as a deferred compensation obligation to participants. The underlying rabbi trust and the related liability was historically carried by FNF. As a result of the Distribution, the liability to Black Knight participants in the FNF DCP, as well as the related assets of the funded rabbi trust, were transferred to the newly-formed Black Knight Deferred Compensation Plan (the "BK DCP") in a non-cash transaction. The terms of the BK DCP are consistent with the terms of the former FNF DCP. The assets of the funded rabbi trust are included in Other non-current assets. Refer to Note 10 — Other Non-Current Assets. As of December 31, 2018, $10.9 million of the related liability is included in Other non-current liabilities and $0.7 million of the related liability is included in Trade accounts payable and other accrued liabilities on the Consolidated Balance Sheets.

Equity-Based Compensation

We expense employee equity-based payments under ASC Topic 718, Compensation—Stock Compensation, which requires compensation cost for the grant date fair value of equity-based payments to be recognized over the requisite service period, which generally equals the vesting period. For awards with a performance condition, we recognize compensation cost under the graded vesting method over the requisite service period of the award, which results in accelerated recognition of the cost. We estimated the grant date fair value of the equity-based awards issued in the form of profits interests using the Black-Scholes option pricing model. The fair value of our restricted stock awards is measured based on the closing market price of our stock on the grant date. Income tax effects of awards are recorded in our Consolidated Statements of Earnings and Comprehensive Earnings when the awards vest or are settled. We account for forfeitures as they occur.

Earnings Per Share

Basic earnings per share is computed by dividing Net earnings attributable to Black Knight by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing Net earnings attributable to Black Knight, adjusted as necessary for the effect of potentially dilutive securities, by the number of weighted-average shares outstanding during the period and the effect of securities that would have a dilutive effect on earnings per share. See Note 4—Earnings Per Share for a more detailed discussion.

Deferred Revenues

Deferred revenues represent our obligation to transfer products or services to our client for which we have received consideration, or an amount of consideration is due, from the client. During the year ended December 31, 2018, revenues recognized related to the amount included in the Deferred revenues balance at January 1, 2018 was $51.7 million.

Revenue Recognition

The following describes our primary types of revenues and our revenue recognition policies as they pertain to the types of contractual arrangements we enter into with our clients to provide products or services either individually or in combination with one another as part of an integrated offering of multiple services. These arrangements occasionally include offerings from more than one segment to the same client.

We recognize revenues primarily relating to software and hosting solutions, professional services and data solutions. In some cases, these services are offered in combination with one another, and in other cases we offer them individually. Revenues from software and hosting solutions are typically volume-based agreements depending on factors such as the number of accounts processed, transactions processed and computer resources utilized.

In accordance with ASC Topic 606, Revenue from Contracts with Customers ("ASC 606"), revenues are recognized when control of the promised goods or services is transferred to our clients, in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods and services. To achieve this core principle, we apply the following five steps:

Identify the contract with a client. A contract with a client exists when: (1) we and the client have approved the contract and both parties are committed to perform their respective obligations; (2) we can identify each party’s rights regarding the products or services to be transferred; (3) we can identify the payment terms for the products or services to be transferred; (4) the contract has commercial substance as our future cash flows are expected to change; and (5) it is probable that we will collect substantially all of the consideration to which we are entitled in exchange for the products or services. Any subsequent contract modifications are analyzed to determine the treatment of the contract modification as a separate contract, prospectively or through a cumulative catch-up adjustment.

Identify the performance obligations in the contract. Performance obligations are promises to transfer a good or service to the client. Performance obligations may be each individual promise in a contract, or may be groups of promises within a contract that significantly affect one another. To the extent a contract includes multiple promises, we must apply judgment to determine whether promises are capable of being distinct and distinct in the context of the contract. If these criteria are not met, the promises are accounted for as a combined performance obligation. Promises that are often considered distinct include our primary software and hosting solutions, while certain ancillary services are generally not distinct within the context of a contract. Professional services such as training, dedicated teams and consulting services are generally distinct. Data solutions that support our software products also include licenses and valuation related analytical services that are generally distinct.

Determine the transaction price. The transaction price is the total amount of consideration to which we expect to be entitled in exchange for transferring promised products and services to a client. Variable consideration refers to any consideration that changes during or after our performance or is contingent on the outcome of future events. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. We estimate the amount of variable consideration that should be included in the transaction price utilizing either the most likely amount method or expected value method. The most prevalent form of variable consideration in our arrangements is a volume-based fee, which is generally estimated utilizing the most likely amount method based primarily on historical experience and expectations of future events. The amount of variable consideration is estimated at the contract’s inception, and we update the estimates of variable consideration throughout the life of the contract or until the variable feature becomes fixed.

Allocate the transaction price to performance obligations in the contract. The allocation of the transaction price to performance obligations is generally done in proportion to their standalone selling prices (“SSP”). SSP is the price that we would sell a distinct product or service separately to a client and is determined at contract inception. At times, there will be observable selling prices for our goods and services, such as for our mortgage servicing software platform. If SSP is not available through the analysis of observable inputs, this step is subject to significant judgment and additional analysis so that we can establish an estimated SSP. The estimated SSP considers all reasonably available information, including market conditions, demands, trends, our specific factors and information about the client or class of clients. The adjusted market approach is generally used for new products or solutions or when observable inputs are not available or limited.

Recognize revenues when or as the company satisfies a performance obligation. We recognize revenues when, or as, distinct performance obligations are satisfied by transferring control of the product or service to the client. A performance obligation is considered transferred when the client obtains control of the product or service. Transfer of control is typically evaluated from the client's perspective. At contract inception, we determine whether we satisfy the performance obligation over time or at a point in time. Revenues from software and hosting solutions are primarily recognized ratably over time or as fee-bearing usages occur. Revenues from certain licenses that require a significant level of integration, interdependency and interrelation with integral updates are generally recognized ratably over time as services are performed. Distinct professional services revenues are primarily billed on a time and materials basis, and revenues are recognized over time as the services are performed. Revenues from data solutions related to a license for historical data or the license portion of certain distinct term licenses are recognized at a point in time upon delivery, while the remaining arrangement consideration allocated to updates is recognized ratably over the period the updates are provided.

Contracts with Multiple Performance Obligations

We are often party to multiple concurrent contracts or contracts pursuant to which a client may purchase a combination of goods and services. At contract inception, we determine whether multiple contracts will be combined and accounted for as a single arrangement. Combination is generally required when the economics of the individual contracts cannot be understood without reference to the whole. While certain contracts may be combined, they are reviewed to determine if the contract has multiple distinct performance obligations. These situations require judgment to determine whether the multiple promises are separate performance obligations. Once we have determined the performance obligations, we determine the transaction price, which includes estimating the amount of variable consideration to be included in the transaction price, if any. We then allocate the transaction price to each performance obligation in the contract based on a relative SSP method unless specific criteria for allocating variable consideration are met. If those criteria are met, which typically is the case for volume-based fees, variable fees are allocated only to the obligation to which they relate. In either case, the corresponding revenues are recognized as the related performance obligations are satisfied.

Operating Expenses

Operating expenses include all costs, excluding depreciation and amortization, incurred by us to produce revenues. Operating expenses primarily include compensation costs, including benefits and equity-based compensation, hardware and software maintenance costs, third-party software costs, rent-related costs and professional services. Equity-based compensation is included within Corporate and Other in Note 19—Segment Information.

General and administrative expenses, which are primarily included in Operating expenses within Corporate and Other in Note 19—Segment Information, include compensation costs, including benefits and equity-based compensation, hardware and software maintenance costs, term licensing costs, rent-related costs and other costs associated with the marketing, human resources, legal, enterprise risk, finance and other support functions. General and administrative expenses also include certain professional and legal fees and costs of advertising and other marketing-related programs.

Depreciation and Amortization

Depreciation and amortization includes depreciation of property and equipment and amortization of computer software, other intangible assets and deferred contract costs. Depreciation and amortization on the Consolidated Statements of Earnings and Comprehensive Earnings include the following (in millions):



	Year ended December 31,
	2018		2017		2016
Property and equipment	$	32.4	$	29.0	$	28.4
Computer software	94.5		84.0		78.0
Other intangible assets	57.2		67.8		76.4
Deferred contract costs	32.9		25.7		25.5
Total	$	217.0	$	206.5	$	208.3

Computer software amortization for the year ended December 31, 2018 includes accelerated amortization of $1.7 million related to certain internally developed software. Deferred contract costs amortization for the years ended December 31, 2018, 2017 and 2016 includes accelerated amortization of $3.4 million, $3.3 million and $4.1 million, respectively.

Transition and Integration Costs

Transition and integration costs for 2018 primarily represent costs associated with executive transition, transition-related costs from the transfer of certain corporate functions from FNF following the Distribution and acquisition-related costs. Transition and integration costs for 2017 primarily consisted of legal and professional fees related to the Distribution and transition-related costs following the Distribution. In 2016, these costs consisted of acquisition-related costs and professional services related to the Distribution.

Interest Expense, Net

Interest expense, net consists primarily of interest expense on our borrowings, a guarantee fee that we paid FNF for their guarantee of our senior notes prior to the Senior Notes Redemption (as defined in Note 11—Long Term Debt), amortization of our debt issuance costs, bond premium and original issue discount, payments on our interest rate swaps, commitment fees on our revolving credit facility and administrative agent fees net of capitalized interest and interest income.

Income Taxes

We are subject to income tax in the U.S. and certain state jurisdictions in which we operate and record the tax effects as a part of the tax accounting process of preparing the consolidated financial statements. Our India subsidiary is subject to income tax in India. The tax accounting process involves calculating actual current tax expense together with assessing basis differences resulting from differing recognition of items for income tax and accounting purposes. These differences result in current and deferred income tax assets and liabilities, which are included within the Consolidated Balance Sheets. We must then assess the likelihood that deferred income tax assets will be recovered from future taxable earnings and, to the extent we believe that recovery is not likely, establish a valuation allowance. We believe that based on our historical pattern of taxable earnings, projections of future earnings, tax planning strategies, reversing taxable timing differences and other relevant evidence, we will produce sufficient earnings in the future to realize recorded deferred income tax assets. To the extent we establish a valuation allowance or increase an allowance in a period, we would reflect the increase as expense within Income tax expense in the Consolidated Statements of Earnings and Comprehensive Earnings. Determination of income tax expense requires estimates and can involve complex issues that may require an extended period to resolve. Further, the estimated level of annual earnings before income tax can cause the overall effective income tax rate to vary from period to period. We believe our tax positions comply with applicable tax law, and we adequately provide for any known tax contingencies. Final determination of prior-year tax liabilities, either by settlement with tax authorities or expiration of statutes of limitations, could be materially different than estimates reflected in assets and liabilities and historical income tax expense. The outcome of these final determinations could have a material effect on our income tax expense, net earnings or cash flows in the period that determination is made.

Black Knight is treated as a corporation under applicable federal and state income tax laws. Following the Distribution and THL Interest Exchange, we no longer have any noncontrolling interests. Deferred tax assets and liabilities are recognized for temporary differences between the financial reporting basis and the tax basis of the corporate subsidiaries' assets and liabilities and expected benefits of utilizing any net operating loss carryforwards.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable earnings in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of changes in tax rates and laws in future periods, if any, is reflected in the consolidated financial statements in the period enacted.

Treasury Shares

Shares held in treasury are at cost. Shares held in treasury at the time of the Distribution were canceled for no consideration. In connection with this transaction, we made a policy election to charge the cost in excess of par value to Retained earnings when we cancel or retire treasury shares.

Recent Accounting Pronouncements

Revenue Recognition (ASC 606)

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606) as well as several other related updates, which were codified as ASC 606. On January 1, 2018, we adopted this update using the modified retrospective method. Under this method, we recognized the cumulative effect of applying the new revenue recognition standard to existing revenue contracts that were active as of the adoption date as an adjustment to the opening balance of Retained earnings. The reported results for the year ended December 31, 2018 reflect the application of ASC 606, while the comparative information has not been restated and continues to be reported under the related accounting standards in effect for those periods. The adoption of ASC 606 represents a change in accounting principle that is intended to more closely align revenue recognition with the delivery of our services and provides financial statement readers with enhanced disclosures.

The effect of ASC 606 on our consolidated financial statements as of December 31, 2018 and for year ended December 31, 2018 is disclosed in Note 14 — Revenues.

Leases (ASC Topic 842, Leases ("ASC 842"))

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under this update, lessees will be required to recognize the following for all leases (with the exception of leases with a term of 12 months or less) at the commencement date: (1) a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use ("ROU") asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. Leases will be classified as finance or operating, with such classification affecting the pattern and classification of expense recognition in the statement of earnings. Under this update, lessor accounting remains largely unchanged. The FASB has also issued other updates since this time that add further clarification. The new lease standard and related updates are effective for us on January 1, 2019.

In preparation for ASC 842, we have formed a project team that evaluated the requirements of ASC 842 and assessed the scope of existing lease agreements and other existing service contracts that are not considered leases under the current guidance. We applied an integrated approach to analyzing the effect of ASC 842, including a review of accounting policies and practices, evaluating differences from applying the requirements of the new standard to our existing agreements and business practices and assessing the need for any changes in our processes, accounting systems and design of relevant internal controls.

The primary effect of adopting the new standard relates to the recognition of our operating leases on our Consolidated Balance Sheets and providing additional disclosures about our leasing activities. Based upon our assessment, we did not identify a material change in our leasing activities. On the adoption date, we expect to recognize ROU assets and lease liabilities of approximately $28 million to $30 million on our Consolidated Balance Sheets for our operating leases.

ASC 842 provides a number of optional practical expedients. We have elected the practical expedient to combine lease and non-lease components when determining the fair value of the ROU asset and lease liability. We also have elected the practical expedient to exclude leases with an initial term of 12 months or less.

Entities are able to apply ASC 842 at the adoption date and recognize a cumulative effect adjustment to the opening balance of Retained earnings in the period of adoption. We will adopt ASC 842 on January 1, 2019 using this transition method.

Other Accounting Pronouncements

In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815). This update expands the permissible benchmark interest rates to include the Secured Overnight Financing Rate ("SOFR") and the Overnight Index Swap ("OIS") Rate as benchmark interest rates for hedge accounting purposes. For entities that have not already adopted ASU 2017-12, the guidance in this update is required to be adopted concurrently with ASU 2017-12. This update is required to be applied prospectively to qualifying new or redesignated hedging relationships entered into on and after the date of adoption. We do not expect the adoption of this update to have a material effect on our consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This update more closely aligns the accounting treatment of implementation costs for cloud solutions to the treatment of costs to develop or obtain internal-use software. Costs incurred during the planning and post-implementation stages are typically expensed, while costs incurred during the development stage are typically capitalized. The capitalized implementation costs are to be expensed over the term of the hosting arrangement including renewal options to the extent those options are expected to be utilized. This update also requires the capitalized implementation costs to be presented in the consolidated financial statements consistent with the presentation of the ongoing fees and payments associated with the cloud arrangement. This update is effective for fiscal years beginning after December 15, 2019 with early adoption permitted. We will adopt this update as of January 1, 2019 and apply the amendments in this update prospectively to implementation costs incurred after the date of adoption. We do not expect the adoption of this update to have a material effect on our consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This update removes, modifies and adds certain disclosure requirements for fair value measurements. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 with early adoption permitted. We do not expect the adoption of this update to have a material effect on our consolidated financial statements and related disclosures.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This update allows a reclassification from Accumulated other comprehensive earnings to Retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 ("Tax Reform Act"). As this update only relates to the reclassification of the income tax effects of the Tax Reform Act, the underlying guidance that requires the effect of a change in tax law or rates is included in income from continuing operations is not affected. This update also requires certain disclosures about stranded tax effects. This update is effective in fiscal years beginning after December 15, 2018, with early adoption permitted. The amendments within this update should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Reform Act is recognized. We do not expect the adoption of this update to have a material effect on our consolidated financial statements and related disclosures.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This update expands and refines hedge accounting for both non-financial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. This update also includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. This update is effective for fiscal years beginning after December 15, 2018. We do not expect the adoption of this update to have a material effect on our consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This update eliminates Step 2 of the goodwill impairment test that required a hypothetical purchase price allocation. Rather, entities should apply the same impairment assessment to all reporting units and recognize an impairment loss for the amount by which a reporting unit's carrying amount exceeds its fair value, without exceeding the total amount of goodwill allocated to that reporting unit. Entities will continue to have the option to perform a qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This update is effective prospectively for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019 with early adoption permitted. We do not expect this update to have a material effect on our consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses. This guidance significantly changes how companies measure and recognize credit impairment for many financial assets. The new Current Expected Credit Loss Model will require companies to immediately recognize an estimate of credit losses expected to occur over the remaining life of the financial assets included in the scope of this standard, which include trade receivables. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. Among other updates, it clarified that impairment of operating lease receivables should be accounted for under ASC 842. Both of these updates are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for annual and interim periods in fiscal years beginning after December 15, 2018. We do not expect this update to have a material effect on our consolidated financial statements and related disclosures.