Significant Accounting Policies and Recent Accounting Pronouncements

Principles of Consolidation

The accompanying consolidated financial statements include The Providence Service Corporation, its wholly-owned subsidiaries, and entities it controls, or in which it has a variable interest and is the primary beneficiary of expected cash profits or losses. The Company records its investments in entities that it does not control, but over which it has the ability to exercise significant influence, using the equity method. The Company has eliminated significant intercompany transactions and accounts.

Accounting Estimates

The Company uses estimates and assumptions in the preparation of the consolidated financial statements in accordance with GAAP. Those estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Company’s consolidated financial statements. These estimates and assumptions also affect the reported amount of net income or loss during any period. The Company’s actual financial results could differ significantly from these estimates. The significant estimates underlying the Company’s consolidated financial statements include revenue recognition; allowance for doubtful accounts; accrued transportation costs; accrued restructuring; income taxes; recoverability of current and long-lived assets, including equity method investments; intangible assets and goodwill; loss contingencies; accounting for business combinations, including amounts assigned to definite and indefinite lived intangibles and contingent consideration; loss reserves for reinsurance and self-funded insurance programs; and stock-based compensation.

Cash and Cash Equivalents

Cash and cash equivalents include all cash balances and highly liquid investments with an initial maturity of

three

months or less. Investments in cash equivalents are carried at cost, which approximates fair value. The Company places its temporary cash investments with high credit quality financial institutions. At times, such investments

may

be in excess of the federally insured limits.

December

31,

2016

and

2015,

$21,411

and

$37,467,

respectively, of cash was held in foreign countries. Such cash is generally used to fund foreign operations, although it

may

be used also to repay intercompany indebtedness or similar arrangements.

Restricted Cash

December

31,

2016

and

2015,

the Company had

$14,130

and

$20,056,

respectively, of restricted cash:

	December 31,
	2016		2015
Collateral for letters of credit - Reinsured claims losses	$	2,265	$	3,033
Escrow/Trust - Reinsured claims losses		11,865		17,023
Restricted cash for reinsured claims losses		14,130		20,056
Less current portion		3,192		4,012
Restricted cash, less current portion	$	10,938	$	16,044

Of the restricted cash amount at

December

31,

2016

and

2015:

●

$2,265

and

$3,033,

respectively, served as collateral for irrevocable standby letters of credit to secure any reinsured claims losses under the Company’s reinsurance program;

●

of the remaining

$11,865

and

$17,023:

$310

and

$565,

respectively, was restricted under a historical auto liability program associated with NET Services that ceased providing reinsurance on new claims in

2011;

and

$11,555

and

$16,458,

respectively, was restricted and held in trusts for reinsurance claims losses under the Company’s workers’ compensation, general and professional liability and auto liability reinsurance programs.

Accounts Receivable and Allowance for Doubtful Accounts

The Company records accounts receivable amounts at the contractual amount, less an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts at an amount it estimates to be sufficient to cover the risk that an account will not be collected. The Company regularly evaluates its accounts receivable, especially receivables that are past due, and reassesses its allowance for doubtful accounts based on identified customer collection issues. In circumstances where the Company is aware of a customer’s inability to meet its financial obligation, the Company records a specific allowance for doubtful accounts to reduce its net recognized receivable to an amount the Company reasonably expects to collect. The Company also provides a general allowance, based upon historical experience. Under certain contracts of NET Services, final payment is based on a reconciliation of actual utilization and cost, and the final reconciliation

may

require a considerable period of time. As of

December

31,

2016

and

2015,

accounts receivable under these reconciliation contracts totaled

$45,287

and

$30,242,

respectively.

The Company’s provision for doubtful accounts expense for the years ended

December

31,

2016,

2015

and

2014

was

$2,892,

$1,369

and

$1,014,

respectively.

Property and Equipment

Property and equipment are stated at historical cost, net of accumulated depreciation, or at fair value if the assets were initially recorded as the result of a business combination or if the asset was remeasured due to an impairment. Depreciation is calculated using the straight-line method over the estimated useful life of the asset. Maintenance and repairs are expensed as incurred. Gains and losses resulting from the disposition of an asset are reflected in operating expense.

Recoverability of Goodwill

In accordance with ASC

350,

Intangibles-Goodwill and Other

, the Company

reviews goodwill for impairment annually, or more frequently, if events and circumstances indicate that an asset

may

be impaired. Such circumstances could include, but are not limited to:

(1)

the loss or modification of significant contracts,

(2)

a significant adverse change in legal factors or in business climate,

(3)

unanticipated competition,

(4)

an adverse action or assessment by a regulator, or

(5)

a significant decline in the Company’s stock price.

Historically, the Company has performed the annual goodwill impairment test for all reporting units as of

December

of each year; however, it elected to

change

this date to

October

of each year beginning in

2016

in order to better align the timing of the annual impairment testing with the Company’s annual budgeting and forecasting process. The Company believes that this

change

in the

goodwill impairment testing date

is not a material

change

to the Company’s method of applying an accounting principle.

The Company’s evaluation of goodwill for impairment involves a

two

-step process to identify goodwill impairment and measure the amount of goodwill impairment loss. First, the Company performs a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment suggests that it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company then performs a quantitative assessment and compares the fair value of the reporting unit, as determined by that quantitative assessment, to its carrying value. If the carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is considered to be potentially impaired and the Company proceeds to step

two

of the impairment analysis. In step

two

of the analysis, the Company determines the amount of any impairment loss by comparing the carrying value of the reporting unit’s goodwill to its implied fair value. Periodically, the Company

may

choose to forgo the initial qualitative assessment and perform only the quantitative analysis in its annual evaluation.

The Company estimates the fair value of the Company’s reporting units using either an income approach, a market valuation approach, a transaction valuation approach or a blended approach. The income approach produces an estimated fair value of a reporting unit based on the present value of the cash flows the Company expects the reporting unit to generate in the future. Estimates included in the discounted cash flow model include the discount rate, which the Company determines based on adjusting an industry-wide weighted-average cost of capital for size, geography, and company specific risk factors, long-term rates of growth and profitability of the Company’s business, working capital effects and planned capital expenditures. The market approach produces an estimated fair value of a reporting unit based on a comparison of the reporting unit to comparable publicly traded entities in similar lines of business. The transaction valuation approach produces an estimated fair value of a reporting unit based on a comparison of the reporting unit to publicly available transactional data involving both publicly traded and private entities in similar lines of business. The Company’s significant estimates in both the market and transaction approach include the selected similar companies with comparable business factors such as size, growth, profitability, risk and return on investment and the multiples the Company applies to revenue and earnings before interest, taxes, depreciation and amortization (“EBITDA”) to estimate the fair value of the reporting unit.

As discussed in Note

Goodwill and Intangibles

, the Company determined that goodwill was impaired for the WD Services segment during the year ended

December

31,

2016,

and the Company recorded an asset impairment charge related to its goodwill of

$5,224.

The Company did not record any impairment charges for continuing operations for the years ended

December

31,

2015

and

2014.

Recoverability of

Intangible Assets Subject to Amortization and Other Long-Lived Assets

Intangible assets subject to amortization and other long-lived assets are carried at cost and are amortized or depreciated on a straight-line basis over their estimated useful lives of

years. In accordance with ASC

360,

Property, Plant, and Equipment

the Company reviews the carrying value of long-lived assets or groups of assets to be used in operations whenever events or changes in circumstances indicate that the carrying amount of the assets

may

be impaired. Factors that

may

necessitate an impairment assessment include, among others, significant adverse changes in the extent or manner in which an asset or group of assets is used, significant adverse changes in legal factors or the business climate that could affect the value of an asset or group of assets or significant declines in the observable market value of an asset or group of assets. The presence or occurrence of those events indicates that an asset or group of assets

may

be impaired. In those cases, the Company assesses the recoverability of an asset or group of assets by determining whether the carrying value of the asset or group of assets exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the asset or the primary asset in the group of assets. If such testing indicates the carrying value of the asset or group of assets is not recoverable, the Company estimates the fair value of the asset or group of assets using appropriate valuation methodologies, which would typically include an estimate of discounted cash flows. If the fair value of those assets or groups of assets is less than carrying value, the Company records an impairment loss equal to the excess of the carrying value over the estimated fair value. As discussed in Note

Goodwill and Intangibles

, the Company determined that the WD Services segment’s intangible assets and property and equipment were impaired during the year ended

December

31,

2016,

and the Company recorded asset impairment charges of

$9,983

and

$4,381

to property and equipment and customer relationship intangible assets, respectively.

Accrued Transportation Costs

NET Services contracts with

third

-party providers for transportation services. Eligible members of our customers schedule transportation through the Company’s central reservation system. The cost of transportation is recorded in the month the services are rendered, based upon contractual rates and mileage estimates. Transportation providers provide invoices once the trip is completed. Any trips that have not been invoiced require an accrual, based upon the expected cost as well as an estimate for cancellations, as the Company is generally only obligated to pay the transportation provider for completed trips. These estimates are based upon the historical trend associated with each contract’s population and the transportation provider network servicing the program. There

may

be differences between actual invoiced amounts and estimated costs, and any resulting adjustments are included in expense. Accrued transportation costs were

$73,191

and

$64,537

December

31,

2016

and

2015,

respectively.

Deferred Financing Costs and Debt Discounts

The Company capitalizes direct expenses incurred in connection with its credit facilities and other borrowings, and amortizes such expenses over the life of the respective credit facility or other borrowings. Fees charged by lenders on the revolving facility and all fees charged by

third

parties are recorded as deferred financing costs and fees charged by lenders on term loans are recorded as a debt discount. Deferred financing costs, net of amortization, totaling

$1,070

as of

December

31,

2016

is included in “Other assets”, in the consolidated balance sheet as there were no borrowings outstanding under the Company’s senior secured credit facility (“

Credit Facility”). Deferred financing costs and debt discount, net of amortization totaling

$4,879

December

31,

2015,

is included in “Long-term obligations, less current portion,” in the consolidated balance sheet.

Revenue Recognition

The Company recognizes revenue when it is earned and realizable based on the following criteria: persuasive evidence that an arrangement exists, services have been rendered, the price is fixed or determinable and collectability is reasonably assured.

NET Services

Capitat

contracts.

The majority of NET Services revenue is generated under capitated contracts with customers where the Company assumes the responsibility of meeting the covered transportation requirements of a specific geographic population based on per-member per-month fees for the number of members in the customer’s program. Revenue is recognized based on the population served during the period. In some capitated contracts, partial payment is received as a prepayment during the month service is provided. These partial payments

may

be due back to the customer, or additional payments

may

be due to the Company, after the contract month, based on a reconciliation of actual utilization and cost compared to the prepayment made.

Fee for service contracts.

Revenues earned under fee for service (“FFS”) contracts are based upon contractually established billing rates. Revenues are recognized when the service is provided based upon contractual amounts.

Flat fee contracts.

Revenues earned under flat fee contracts are recognized ratably over the covered service period based upon contractually established fees which do not fluctuate with any changes in the membership population who are eligible to receive the transportation services.

For most contracts, the Company arranges for transportation of members through its network of independent transportation providers, whereby it remits payment to the transportation providers. However, for certain contracts, the Company only provides management services, and does not contract with transportation providers for the actual transportation. Under these contracts, the amount of revenue recognized is based upon the management fee earned.

Services

WD Services revenues are primarily generated from providing workforce development and offender rehabilitation services, both of which include employment preparation and placement, apprenticeship and training, youth community service programs and certain health related services to clients on behalf of governmental and private entities. While the specific terms vary by contract and country, the Company often receives

four

types of revenue streams under contracts with government entities: referral/attachment fees, job placement/job outcome fees, sustainment fees and incentive fees. Referral/attachment fees are typically upfront payments that are payable when a client is referred by the contracting government entity or that client enters the program. Job placement fees are typically payable when a client is employed. Job outcome fees are typically payable when a client is employed, and remains employed for a specified period of time. Sustainment fees are typically payable upon certain employment

tenure

milestones. Incentive fees are generally based upon a calculation that includes a variety of factors and inputs, such as average sustainment rates and client referral rates. Incentive fees vary greatly by contract.

Referral/attachment fee revenue is recognized ratably over the period of service, based upon an estimated period of time general services will be provided (i.e. the person is placed in a job or reaches the maximum time period for the program). The estimated period of time services will be rendered is based upon historical data. Job placement, job outcome and sustainment fee revenue is recognized when certain milestones are achieved, and amounts become billable. Incentive fee revenue is generally recognized when fixed and determinable, frequently at the end of the cumulative calculation period, unless contractual terms allow for earned payments on a fixed or ratable basis.

Revenue is also earned under fixed FFS arrangements, based upon contractual rates established at the outset of the contract or the applicable contract year, although the rate

may

be prospectively adjusted during the contract year based upon actual volumes. If the rate is adjusted but the Company is unable to adjust its costs accordingly, our profitability

may

be negatively impacted. Volume levels are typically not guaranteed under contracts.

Deferred Revenue

At times we

may

receive funding for certain services in advance of services being rendered. These amounts are reflected in the consolidated balance sheets as “Deferred revenue” until the services are rendered.

Stock-Based Compensation

The Company follows the fair value recognition provisions of ASC Topic

718

–

Compensation – Stock Compensation

(“ASC

718”),

which requires companies to measure and recognize compensation expense for all share based payments at fair value.

●

The Company calculates the fair value of stock options using the Black-Scholes option-pricing formula. The fair value of non-vested restricted stock grants is determined based on the closing market price of the Company’s common stock on the date of grant. Stock-based compensation expense charged against income for stock options and stock grants is based on the grant-date fair value, based upon the number of awards expected to vest. Forfeitures estimated at the time of grant are revised as necessary based upon actual vesting. The expense for stock-based compensation awards is amortized on a straight-line basis over the requisite service period, which is typically the vesting period.

●

The Company records restricted stock units (“RSUs”) that

may

be settled by the holder in cash, rather than shares, as a liability and remeasures these liabilities at fair value at the end of each reporting period. Upon settlement of these awards, the total compensation expense recorded over the vesting period of the awards will equal the settlement amount, which is based on the Company’s stock price on the settlement date.

●

Performance-based RSUs vest upon achievement of certain company specific performance conditions. On the date of grant, the Company determines the fair value of the performance-based award using the fair value of the Company’s common stock at that time and it assesses whether it is probable that the performance targets will be achieved. If assessed as probable, the Company records compensation expense for these awards over the requisite service period. At each reporting period, the Company reassesses the probability of achieving the performance targets and the performance period required to meet those targets. The estimation of whether the performance targets will be achieved and of the performance period required to achieve the targets requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, the cumulative effect on current and prior periods of those changes will be recorded in the period estimates are revised, or the change in estimate will be applied prospectively depending on whether the change affects the estimate of total compensation cost to be recognized or merely affects the period over which compensation cost is to be recognized. The ultimate number of shares issued and the related compensation expense recognized will be based on a comparison of the final performance metrics to the specified targets.

●

The Company calculates the fair value of market-based stock awards, including the Company’s the

2015

Holding Company LTI Program (the “HoldCo LTIP”) awards, using the Monte-Carlo simulation valuation model. Forfeitures estimated at the time of grant are revised as necessary based upon actual vesting. Compensation expense for market-based awards is recognized over the requisite service period regardless of whether the market conditions are expected to be achieved.

Income Taxes

Deferred income taxes are determined by the liability method in accordance with ASC Topic

740

Income

Taxes

. Under this method, deferred tax assets and liabilities are determined based on differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The Company considers many factors when assessing the likelihood of future realization of deferred tax assets, including recent earnings experience by jurisdiction, expectations of future taxable income, and the carryforward periods available for tax reporting purposes, as well as other relevant factors. The Company establishes a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. Due to inherent complexities arising from the nature of the Company’s businesses, future changes in income tax law or variances between the Company’s actual and anticipated operating results, the Company makes certain judgments and estimates. Therefore, actual income taxes could materially vary from these estimates.

The Company has recorded a valuation allowance which includes amounts for net operating losses and tax credit carryforwards, as more fully described in Note

18,

Income Taxes,

for which the Company has concluded that it is more likely than not that these net operating loss and tax credit carryforwards will not be realized in the ordinary course of operations.

The Company recognizes interest and penalties related to income taxes as a component of income tax expense.

Residual U.S. income taxes have not been provided on undistributed earnings of the Company’s foreign subsidiaries. These earnings are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes will be provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company

may

be subject to both U.S. income taxes and withholding taxes payable to various foreign jurisdictions, less an adjustment for foreign tax credits. Funds utilized to repay intercompany amounts are not subject to withholding requirements. Because of the availability of U.S. foreign tax credits, it is not practicable to determine the U.S. federal income tax liability that would be payable if such earnings were not reinvested indefinitely.

The Company accounts for uncertain tax positions based on a

two

-step process of evaluating recognition and measurement criteria. The

first

step assesses whether the tax position is more likely than not to be sustained upon examination by the tax authority, including resolution of any appeals or litigation, based on the technical merits of the position. If the tax position meets the more likely than not criteria, the portion of the tax benefit greater than

50%

likely to be realized upon settlement with the tax authority is recognized in the consolidated financial statements.

Foreign Currency Translation

Local currencies generally are considered the functional currencies outside the US. Assets and liabilities for operations in local-currency environments are translated at month-end exchange rates of the period reported. Income and expense items are translated at the average exchange rate for each applicable month. Cumulative translation adjustments are recorded as a component of accumulated other comprehensive loss, net of tax, in stockholders’ equity within the consolidated balance sheets.

Loss Reserves for Certain Reinsurance and Self-Funded Insurance Programs

The Company reinsures a substantial portion of its automobile, general and professional liability and workers’ compensation costs under reinsurance programs through the Company’s wholly-owned subsidiary, Social Services Providers Captive Insurance Company (“SPCIC”), a licensed captive insurance company domiciled in the State of Arizona.

The Company and its subsidiaries enter into insurance arrangements with

third

-party insurers. SPCIC reinsures

third

-party insurers for automobile liability exposures for

$250

per claim. SPCIC also reinsures these

third

-party insurers for general and professional liability exposures for the

first

dollar of each loss up to

$1,000

per loss and

$3,000

in the aggregate. Additionally, SPCIC reinsures a

third

-party insurer for worker’s compensation insurance for the

first

dollar of each and every loss up to

$500

per occurrence. The Company utilizes a report prepared by an independent actuary to estimate the gross expected losses related to automobile, general and professional and workers’ compensation liability, including the estimated losses in excess of SPCIC’s insurance limits, which would be reimbursed to SPCIC to the extent such losses were incurred. As of

December

31,

2016

and

2015,

the Company had reserves of

$11,195

and

$12,988,

respectively, for the automobile, general and professional liability and workers’ compensation programs, net of expected receivables for losses in excess of SPCIC’s insurance limits. The gross reserve as of

December

31,

2016

and

2015

$16,460

and

$19,733,

respectively, is classified as “Reinsurance liability reserves” and “Other long-term liabilities” in the consolidated balance sheets. The estimated amount to be reimbursed to SPCIC as of

December

31,

2016

and

2015

was

$5,265

and

$6,745,

respectively, and is classified as “Other receivables’ and “Other assets” in the consolidated balance sheets.

The Company also maintains a self-funded health insurance program with a stop-loss umbrella policy with a

third

-party insurer to limit the maximum potential liability for individual claims to

$275

per person, subject to an aggregating stop-loss limit of

$400.

In addition, the program has a total stop-loss limit for total claims, in order to limit the Company’s exposure to catastrophic claims. With respect to this program, the Company considers historical and projected medical utilization data when estimating its health insurance program liability and related expense. As of

December

31,

2016

and

2015,

the Company had

$3,022

and

$2,351,

respectively, in reserve for its self-funded health insurance programs. The reserves are classified as “Reinsurance and related liability reserves” in the consolidated balance sheets.

The Company utilizes analyses prepared by

third

-party administrators and independent actuaries based on historical claims information with respect to the general and professional liability coverage, workers’ compensation coverage, automobile liability, automobile physical damage, and health insurance coverage to determine the amount of required reserves.

The Company regularly analyzes its reserves for incurred but not reported claims, and for reported but not paid claims related to its reinsurance and self-funded insurance programs. The Company believes its reserves are adequate. However, significant judgment is involved in assessing these reserves such as assessing historical paid claims, average lags between the claims’ incurred date, reported dates and paid dates, and the frequency and severity of claims. There

may

be differences between actual settlement amounts and recorded reserves and any resulting adjustments are included in expense once a probable amount is known.

Restructuring

, Redundancy

and Related Reorganization Costs

The Company has engaged in employee headcount optimization actions within the WD Services segment which require management to estimate the timing and amount of severance and other employee separation costs for workforce reduction. The Company accrues for severance and other employee separation costs under these actions when it is probable that benefits will be paid and the amount is reasonably estimable. The amounts used in determining severance accruals are based on an estimate of the salaries and related benefit costs payable under existing plans, and are included in accrued expenses to the extent they have not been paid.

Noncontrolling Interests

Noncontrolling interests represent the noncontrolling holders’ percentage share of income or losses from a subsidiary in which the Company holds a majority, but less than

100%,

ownership interest and the results of which are consolidated and included in the Company’s consolidated financial statements. The Company has a

90%

ownership in The Reducing Reoffending Partnership Limited, which commenced operations in

2015.

Discontinued Operations

In determining whether a group of assets disposed (or to be disposed) of should be presented as a discontinued operation, the Company makes a determination of whether the criteria for held-for-sale classification is met and whether the disposition represents a strategic shift that has (or will have) a major effect on the entity’s operations and financial results. If these determinations can be made affirmatively, the results of operations of the group of assets being disposed of (as well as any gain or loss on the disposal transaction) are aggregated for separate presentation apart from continuing operating results of the Company in the consolidated financial statements. See Note

21,

Discontinued Operations,

for a summary of discontinued operations.

Earnings Per Share

The Company computes basic earnings per share by taking net income attributable to the Company available to common stockholders divided by the weighted average number of common shares outstanding during the period including restricted stock and stock held in escrow if such shares are participating securities. Diluted earnings per share includes the potential dilution that

may

occur from stock-based awards and other stock-based commitments using the treasury stock or the as-if converted methods, as applicable. For additional information on how the Company computes earnings per share, see Note

15,

Earnings Per Share

Fair Value of Financial Instruments

The Company discloses the fair value of its financial instruments based on the fair value hierarchy using the following

three

categories:

Level

– Quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.

Level

– Observable inputs other than Level

prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level

– Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company

may

be required to pay additional consideration in relation to certain acquisitions based on the achievement of certain earnings targets. Acquisition-related contingent consideration is initially measured and recorded at fair value as an element of consideration paid in connection with an acquisition with subsequent adjustments recognized in “General and administrative expense” in the consolidated statements of income. The Company determines the fair value of acquisition-related contingent consideration, and any subsequent changes in fair value using a discounted probability-weighted approach. This approach takes into consideration Level

unobservable inputs including probability assessments of expected future cash flows over the period in which the obligation is expected to be settled and applies a discount factor that captures the uncertainties associated with the obligation. Changes in these unobservable inputs could significantly impact the fair value of the obligation recorded in the accompanying consolidated balance sheets and operating expenses in the consolidated statements of income.

The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate their fair value because of the relatively short-term maturity of these instruments.

Recent Accounting Pronouncements

The Company adopted the following accounting pronouncements during the year ended

December

31,

2016:

April

2015,

the FASB issued ASU

2015

03,

which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company capitalizes debt issuance costs incurred in connection with its credit facilities, line-of-credit, and other borrowings (“deferred financing costs”), and amortizes such costs over the life of the respective debt liability.

Upon adoption of ASU

2015

January

2016,

the Company elected to present deferred financing costs for both its credit facilities and line-of credit arrangement as a direct deduction from the carrying amount of the respective debt liability. Accordingly, deferred financing costs, net of amortization, totaling

$3,774

December

31,

2015

have been reclassified from “Other assets” to “Long-term obligations, less current portion” in the consolidated balance sheet.

February

2015,

the FASB issued ASU No.

2015

02,

Consolidation (Topic

810):

Amendments to the Consolidation Analysis

(“ASU

2015

02”)

which changes the way reporting enterprises evaluate whether (a) they should consolidate limited partnerships and similar entities, (b) fees paid to a decision maker or service provider are variable interests in a variable interest entity (“VIE”), and (c) variable interests in a VIE held by related parties of the reporting enterprise require the reporting enterprise to consolidate the VIE. The new consolidation guidance is effective for public business entities for annual and interim periods in fiscal years beginning after

December

15,

2015.

The adoption of ASU

2015

January

2016

had no impact on the consolidation of the Company’s existing VIEs.

September

2015,

the FASB issued ASU

2015

16,

Business Combinations (Topic

805):

Simplifying the Accounting for Measurement-Period Adjustments

(“ASU

2015

16”)

which eliminates the requirement for an acquirer to retrospectively adjust the financial statements for measurement-period adjustments that occur in periods after a business combination is consummated. The ASU is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after

December

15,

2015.

The Company adopted ASU

2015

January

2016.

The adoption of this ASU did not have an impact on the Company’s current accounting and disclosures; however, any future business acquisition transactions

may

be impacted.

Recent accounting pronouncements that were not yet adopted by the Company through

December

31,

2016

are as follows:

May

2014,

the FASB issued ASU No.

2014

09,

Revenue from Contracts with Customers: Topic

606

(“ASU

2014

09”).

ASU

2014

introduced FASB Accounting Standards Codification Topic

606

(“ASC

606”).

ASC

606

will supersede ASC

605,

Revenue Recognition

and most of the industry-specific guidance on recognizing revenue. The FASB has since issued the following updates that clarify or supplement the guidance in ASU

2014

09:

	●	In December 2016, the FASB issued ASU No. 2016 - 20, Revenue from Contracts with Customers (Topic 606): Technical Corrections and Improvements (“ASU 2016 - 20”). ASU 2016 - 20 makes several narrow-scope improvements or clarifications to ASC 606. Most notably, ASU 2016 - 20 provides additional guidance on testing contract costs for impairment, applying the guidance on contract modifications, and determining the point at which a contract asset becomes a receivable. Additionally, ASU 2016 - 20 clarifies the information an entity should include in the disclosure of remaining performance obligations and provides an optional exemption from those disclosure requirements in situations in which an entity is not required to estimate variable consideration to recognize revenue.
	●	In May 2016, the FASB issued ASU No. 2016 - 12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016 - 12”). ASU 2016 - 12 clarifies how an entity should assess collectability, present sales taxes, measure noncash consideration and apply some aspects of the transition guidance in ASU 2014 - 09.
	●	In April 2016, the FASB issued ASU No. 2016 - 10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016 - 10”). ASU 2016 - 10 clarifies the guidance in ASU 2014 - 09 for identifying performance obligations and recognizing revenue for licenses of intellectual property.
	●	In March 2016, the FASB issued ASU No. 2016 - 08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016 - 08”) . ASU 2016 - 08 clarifies the implementation guidance in ASU 2014 - 09 on principal versus agent considerations and whether an entity should report revenue on a gross or net basis.

Each of these ASUs are effective for public companies for annual reporting periods (and interim reporting periods within those annual reporting periods) beginning after

December

15,

2017

and permit entities to transition using either a full retrospective or modified retrospective methodology. The Company has developed an implementation plan, assembled a cross-functional project team and begun to assess the impacts of applying ASC

606

by completing an analysis of the Company’s contracts with its customers. Based upon these preliminary procedures, management anticipates that the following key considerations will impact the Company's accounting and reporting under the new standard:

	●	identification of what constitutes a contract in the Company’s environment,
	●	timing of revenue recognition (for example, point-in-time versus over time and/or accelerated versus deferred),
	●	single versus multiple performance obligations, and

●

other considerations.

The assessment of applying ASC

606

is ongoing and, therefore, the Company has not yet determined whether those impacts will be material to the Company’s consolidated financial statements.

November

2015,

the FASB issued ASU

2015

17,

Income Taxes (Topic

740):

Balance Sheet Classification of Deferred Taxes

(“ASU

2015

17”)

which changes how deferred taxes are classified on organizations’ balance sheets. The ASU eliminates the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations will be required to classify all deferred tax assets and liabilities as noncurrent. The amendments apply to all organizations that present a classified balance sheet. For public companies, the amendments are effective for financial statements issued for annual periods beginning after

December

16,

2016,

and interim periods within those annual periods. The Company adopted ASU

2015

January

2017.

This ASU impacts the Company’s financial statements, as the Company had

$6,825

of current deferred tax assets, at

December

31,

2016.

Application of this guidance as of

December

31,

2016

would have resulted in a long-term deferred tax asset of

$1,510

and a long-term deferred tax liability of

$57,973

in the consolidated balance sheet as of

December

31,

2016.

February

2016,

the FASB issued ASU No.

2016

02,

Leases (Topic

842)

(“ASU

2016

02”).

ASU

2016

introduced FASB Accounting Standards Codification Topic

842

(“ASC

842”),

which will replace ASC

840,

Leases

. Under ASC

842,

lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use 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.

ASU

2016

is effective for publicly held entities for fiscal years beginning after

December

15,

2018,

including interim periods within those fiscal years. Early application is permitted. Lessees must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach does not require transition accounting for leases that expired before the earliest comparative period presented. Lessees

may

not apply a full retrospective transition approach. The Company has not entered into significant lease agreements in which it is the lessor; however, the Company does have lease agreements in which it is the lessee. The Company is in the preliminary stages of assessing the impact of applying ASC

842

to its lease agreements. The assessment of applying ASU

2016

is ongoing and, therefore, the Company has not yet determined whether the impacts will be material to the Company’s consolidated financial statements.

March

2016,

the FASB issued ASU No.

2016

07,

Investments - Equity Method and Joint Ventures (Topic

323):

Simplifying the Transition to the Equity Method of Accounting

(“ASU

2016

07”).

ASU

2016

eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. ASU

2016

instead specifies that the investor should add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and apply the equity method of accounting as of the date the investment became qualified for equity method accounting. ASU

2016

is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after

December

15,

2016

and should be applied prospectively. The Company adopted ASU

2016

January

2017.

The adoption of ASU

2016

will impact the Company’s accounting and disclosures for investments for which it begins applying the equity method after

January

2017.

March

2016,

the FASB issued ASU No.

2016

09,

Compensation - Stock Compensation (Topic

718):

Improvements to Employee Share-Based Payment Accounting

(“ASU

2016

09”).

ASU

2016

is intended to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. For public companies, the amendments are effective for annual periods beginning after

December

15,

2016,

and interim periods within those annual periods. The Company adopted ASU

2016

January

2017,

and elected to recognize forfeitures as they occur. The Company also elected to apply the change in classification of cash flows resulting from excess tax benefits or deficiencies on a retrospective basis. The adoption resulted in the Company recording a cumulative effect adjustment to retained earnings on

January

2017

totaling

$841

for the differential between the amount of compensation cost previously recorded and the amount that would have been recorded without an applied estimated forfeiture assumption, as well as the recognition of previously unrecognized excess tax benefits of

$6,507

through a cumulative effect adjustment to retained earnings as of

January

2017.

June

2016,

the FASB issued ASU No.

2016

13,

Financial Instruments – Credit Losses (Topic

326)

(“ASU

2016

13”).

The amendments in ASU

2016

will supersede or clarify much of the existing guidance for reporting credit losses for assets held at amortized cost basis and available for sale debt securities. The amendments in ASU

2016

affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU

2016

is effective for financial statements issued for fiscal years beginning after

December

15,

2019,

with early adoption permitted for fiscal years beginning after

December

15,

2018.

The Company has not evaluated the impact of ASU

2016

on its consolidated financial statements.

August

2016,

the FASB issued ASU No.

2016

15,

Statement of Cash Flows (Topic

230):

Classification of Certain Cash Receipts and Cash Payments

(“ASU

2016

15”).

ASU

2016

provides guidance for

eight

targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. ASU

2016

is effective for financial statements issued for fiscal years beginning after

December

15,

2017,

with early adoption permitted. The Company currently is evaluating the impact the adoption of this ASU will have on the presentation of the Company's consolidated statements of cash flows.

November

2016,

the FASB issued ASU No.

2016

18,

Statement of Cash Flows (Topic

230):

Restricted Cash

(“ASU

2016

18”).

ASU

2016

requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. ASU

2016

is effective for public entities for fiscal years beginning after

December

15,

2017,

and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period, however, any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. ASU

2016

must be adopted retrospectively. The Company currently is evaluating the impact the adoption of ASU

2016

will have on the presentation of the Company’s consolidated statements of cash flows.