XML 38 R24.htm IDEA: XBRL DOCUMENT

Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2018

The consolidated financial statements include the accounts of Computer Task Group, Incorporated, and its subsidiaries (the Company or CTG), located primarily in North America, Western Europe, and India. There are no unconsolidated entities, or off-balance sheet arrangements other than certain guarantees supporting office leases and the performance under government contracts in the Company's European operations. All inter-company accounts have been eliminated. Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with U.S. generally accepted accounting principles. Such estimates primarily relate to the valuation allowances for deferred tax assets, actuarial assumptions including discount rates and expected rates of return, as applicable, for the Company’s defined benefit plans, the allowance for doubtful accounts receivable, assumptions underlying stock option valuation, investment valuation, estimates of progress toward completion and direct profit or loss on contracts, legal matters, and other contingencies. The current economic environments in the United States, Canada, Western Europe, and India where the Company has operations have increased the degree of uncertainty inherent in these estimates and assumptions. Actual results could differ from those estimates.

Concentration Risk, Credit Risk

The Company operates in one industry segment, providing IT services to its clients. These services include IT Solutions and IT and other Staffing. CTG provides these services to all of the markets that it serves. The services provided typically encompass the IT business solution life cycle, including phases for planning, developing, implementing, managing, and ultimately maintaining the IT solution. A typical client is an organization with large, complex information and data processing requirements. The Company provides administrative or warehouse employees to clients from time to time to supplement the IT resources we place at those clients. The Company promotes a significant portion of its services through five vertical market focus areas: technology service providers, manufacturing, healthcare (which includes services provided to healthcare providers, health insurers (payers), and life sciences companies), financial services, and energy. The Company focuses on these five vertical areas as it believes that these areas are either higher growth markets than the general IT services market and the general economy, or are areas that provide greater potential for the Company’s growth due to the size of the vertical market. The remainder of CTG’s revenue is derived from general markets.

CTG’s revenue by vertical market as a percentage of consolidated revenue for the three years ended December 31, 2018, 2017, and 2016 is as follows:

	2018			2017			2016
Technology service providers		32.4	%		33.1	%		35.2	%
Manufacturing		19.5	%		24.3	%		24.2	%
Healthcare		16.2	%		16.8	%		18.2	%
Financial services		15.2	%		9.1	%		7.8	%
Energy		4.7	%		5.0	%		5.3	%
General markets		12.0	%		11.7	%		9.3	%
Total		100.0	%		100.0	%		100.0	%

Revenue and Cost Recognition

The Company recognizes revenue when control of the promised good or service is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. For time-and-material contracts, revenue is recognized as hours are incurred and costs are expended. For contracts with progress billing schedules, primarily monthly, revenue is recognized as services are rendered to the customer. Revenue for fixed-price contracts is recognized over time using an input-based approach. Over time revenue recognition best portrays the Company’s performance in transferring control of the goods or services to the customer. On most fixed price contracts, revenue recognition is supported through contractual clauses that require the customer to pay for work performed to date, including cost plus a reasonable profit margin, for goods or services that have no alternative use to the Company. On certain contracts, revenue recognition is supported through contractual clauses that indicate the customer controls the asset, or work in process, as the Company creates or enhances the asset. On a given project, actual salary and indirect labor costs incurred are measured and compared with the total estimate of costs of such items at the completion of the project. Revenue is recognized based upon the percentage-of-completion calculation of total incurred costs to total estimated costs. The Company infrequently works on fixed-price projects that include significant amounts of material or other non-labor related costs that could distort the percent complete within a percentage-of-completion calculation. The Company’s estimate of the total labor costs it expects to incur over the term of the contract is based on the nature of the project and experience on similar projects, and includes management judgments and estimates that affect the amount of revenue recognized on fixed-price contracts in any accounting period. Losses on fixed-price projects are recorded when identified.

The Company’s revenue from contracts accounted for under time-and-material, progress billing, and percentage-of-completion methods as a percentage of consolidated revenue for the three years ended December 31, 2018, 2017, and 2016 is as follows:

	2018			2017			2016
Time-and-material		84.7	%		85.9	%		86.5	%
Progress billing		10.5	%		10.8	%		10.8	%
Percentage-of-completion		4.8	%		3.3	%		2.7	%
Total		100.0	%		100.0	%		100.0	%

The Company recorded revenue for fiscal years ended 2018 compared to 2017 and 2017 compared to 2016 as follows:

Year Ended December 31,	% of total			2018		% of total			2017		Year-Over- Year Change
(dollars in thousands)
North America		64.9	%	$	232,695		73.1	%	$	220,085		5.7	%
Europe		35.1	%		126,074		26.9	%		81,125		55.4	%
Total		100.0	%	$	358,769		100.0	%	$	301,210		19.1	%

Year Ended December 31,	% of total			2017		% of total			2016		Year-Over- Year Change
(dollars in thousands)
North America		73.1	%	$	220,085		78.3	%	$	254,264		(13.4	)%
Europe		26.9	%		81,125		21.7	%		70,629		14.9	%
Total		100.0	%	$	301,210		100.0	%	$	324,893		(7.3	)%

Significant Judgments

With the exception of cost estimates on certain fixed-price projects, there are no other significant judgments used to determine the timing of satisfaction of performance obligations or determining transaction price and amounts allocated to performance obligations. The Company allocates the transaction price based on standalone selling prices for contracts with customers that include more than one performance obligation. Standalone selling prices are based on the expected cost of the good or service plus margin approach. Certain customers may qualify for discounts and rebates, which we account for as variable consideration. The Company estimates variable consideration and reduces revenue recognized based on the amount it expects to provide to customers.

Contract Balances

For time-and-material and progress billing contracts, the timing of the Company’s satisfaction of its performance obligations is consistent with the timing of payment. For these contracts, the Company has the right to payment in the amount that corresponds directly with the value of the Company’s performance to date. The Company uses the right to invoice practical expedient that allows the Company to recognize revenue in the amount for which it has the right to invoice for time-and-material and progress billing contracts. Bill schedules for fixed-price contracts are generally consistent with the Company’s performance in transferring control of the goods or services to the customer. There are no significant financing components in our contracts with customers. Advanced billings represent contract liabilities for cash payments received in advance of our performance. Unbilled receivables are reported within “accounts receivable” on the consolidated balance sheet. Accounts receivable and contract liability balances fluctuate based on the timing of the customer’s billing schedule and the Company’s period-end date. There are no significant costs to obtain or fulfill contracts with customers.

Transaction Price Allocated to Remaining Performance Obligations

As of December 31, 2018, the aggregate transaction price allocated to unsatisfied or partially unsatisfied performance obligations for fixed-price and all progress billing contracts was approximately $13.2 million and $38.8 million, respectively. Approximately $30.4 million of the transaction price allocated to unsatisfied or partially unsatisfied performance obligations is expected to be earned in 2019. Approximately $21.6 million of the transaction price allocated to unsatisfied or partially unsatisfied performance obligations is expected to be earned in 2020 and beyond. The Company uses the right to invoice practical expedient. Therefore, no disclosure is required for unsatisfied performance obligations for contracts in which we recognize revenue at the amount to which we have the right to invoice for services performed.

Taxes Collected from Customers

In instances where the Company collects taxes from its customers for remittance to governmental authorities, primarily in its international locations, revenue and expenses are not presented on a gross basis in the consolidated financial statements as such taxes are recorded in the Company's accounts on a net basis.

The Company includes billable expenses in its accounts as both revenue and direct costs. These billable expenses totaled $3.2 million, $3.3 million, and $4.0 million in 2018, 2017, and 2016, respectively.

Fair Value

Fair value is defined as the exchange price that would be received for an asset or paid for a liability in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants. The Company utilizes a fair value hierarchy for its assets and liabilities, as applicable, based upon three levels of input, which are:

Level 1—quoted prices in active markets for identical assets or liabilities (observable)

Level 2—inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in inactive markets, or other inputs that are observable or can be supported by observable market data for essentially the full term of the asset or liability (observable)

Level 3—unobservable inputs that are supported by little or no market activity, but are significant to determining the fair value of the asset or liability (unobservable)

At December 31, 2018 and 2017, the carrying amounts of the Company’s cash of $12.4 million and $11.2 million, respectively, approximated fair value.

As described in Note 3 of the consolidated financial statements, the Company acquired 100% of the equity of Soft Company in the 2018 first quarter. Level 3 inputs were used to estimate the fair values of the assets acquired and liabilities assumed. The valuation techniques used to assign fair values to intangible assets included the relief-from-royalty method and excess earnings method. In addition, the Company has a contingent consideration liability related to the earn-out provision of which a portion will be payable in each period subject to the achievement by Soft Company of certain revenue and EBIT targets for fiscal 2017, 2018, and 2019. There is no payout if the achievement on either target is below a certain target threshold. The fair value of this contingent consideration is determined using level 3 inputs. The fair value assigned to the contingent consideration liability is determined using the real options method, which requires inputs such as revenue forecasts, EBIT forecasts, discount rate, and other market variables to assess the probability of Soft Company achieving the revenue and EBIT targets. The fair value as of the February 15, 2018 acquisition date was determined to be $2.0 million. In the 2018 second quarter, the Company paid approximately $0.9 million relating to the earn-out based on the achievement by Soft Company of certain revenue and EBIT targets for fiscal 2017. The fair value of the remaining contingent consideration liability was determined to be approximately $1.5 million as of December 31, 2018. As such, the Company recorded $0.5 and $0.1 million of selling, general and administrative expense during the 2018 third and fourth quarters, respectively. Approximately $1.1 million and $0.4 million of the remaining contingent consideration liability is recorded in “other current liabilities” and “other long-term liabilities”, respectively, on the December 31, 2018, consolidated balance sheet.

The Company is also allowed to elect an irrevocable option to measure, on a contract by contract basis, specific financial instruments and certain other items that are currently not being measured at fair value. The Company did not elect to apply the fair value provisions of this standard for any specific contracts during the years ended December 31, 2018 and 2017.

Life Insurance Policies

The Company has purchased life insurance on the lives of a number of former employees who are plan participants in the non-qualified defined benefit Executive Supplemental Benefit Plan. In total, there are policies on 18 individuals, whose average age is 75 years old. These policies have generated cash surrender value, and the Company, prior to 2015, and then again in 2018, took loans against the policies.

The Company borrowed $29.2 million against the cash surrender value of these life insurance policies during 2018. At December 31, 2018, these insurance policies have a gross cash surrender value of $28.4 million, outstanding loans and interest totaling $25.8 million, and a net cash surrender value of $2.6 million. As December 31, 2017, these insurance policies, with no outstanding loans, had a cash surrender value of $31.5 million.

At December 31, 2018 and 2017, the total death benefit for the remaining policies was approximately $37.6 million and $42.2 million, respectively. Currently, upon the death of all of the plan participants, the Company would expect to receive approximately $11.6 million, and under current tax regulations, would record a non-taxable gain of approximately $8.9 million.

Two former employees covered by these policies recently passed away, one in the 2018 third quarter and the other in the 2017 fourth quarter. The Company recorded non-taxable gains of approximately $0.8 million and $0.4 million in the respective quarters. The Company received approximately $1.0 million in the 2018 fourth quarter for the 2018 death, and received approximately $1.1 million in the 2018 first quarter for the 2017 death.

Cash and Cash Equivalents, and Cash Overdrafts

For purposes of the statement of cash flows, cash and cash equivalents are defined as cash on hand, demand deposits, and short-term, highly liquid investments with a maturity of three months or less. As the Company does not fund its bank accounts for the checks it has written until the checks are presented to the bank for payment, the "change in cash overdraft, net" line item as presented on the consolidated statement of cash flows represents the increase or decrease in outstanding checks for a given period.

Trade Accounts Receivable

Trade accounts receivable balances are received on average approximately 82 days from the date of invoice. Generally, the Company does not work on any projects where amounts due are expected to be received greater than one year from the date of the invoice. Accordingly, the recorded book value for the Company’s accounts receivable equals fair value. Outstanding trade accounts receivable are generally considered past due when they remain unpaid after the contractual due date has passed. An allowance for doubtful accounts receivable (allowance) is established using management’s judgment. Specific identification of balances that are significantly past due and where client payments have not been recently received are generally added to the allowance unless the Company has direct knowledge that the client intends to make payment. Additionally, any balances which relate to a client that has declared bankruptcy or ceased its business operations are added to the allowance at the amount not expected to be received.

The Company recorded a net bad debt recovery of less than $0.1 million in 2018 and 2017. Bad debt expense, net of recoveries was approximately $0.2 million in 2016.

Property, Equipment and Capitalized Software Costs

Property and equipment are generally stated at historical cost less accumulated depreciation. Depreciation is computed using the straight-line method based on estimated useful lives of one year to 30 years, and begins after an asset has been placed into service. Leasehold improvements are generally depreciated over the shorter of the term of the lease or the useful life of the improvement. The cost of property or equipment sold or otherwise disposed of, along with related accumulated depreciation, is eliminated from the accounts, and the resulting gain or loss, if any, is reflected in current earnings. Maintenance and repairs are charged to expense when incurred, while significant improvements to existing assets are capitalized.

As of December 31, 2018 and 2017, the Company had capitalized costs relating to software projects developed for internal use. Amortization periods for these projects range from two to five years, and begin when the software, or enhancements thereto, is available for its intended use. Amortization periods are evaluated annually for propriety.

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When such circumstances exist, the recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of by sale, if any, are reported at the lower of the carrying amount or fair value less costs to sell. The Company does not have any long-lived assets that are impaired at December 31, 2018.

During 2017, the Company was in the process of negotiating the sale of its corporate administrative building. The Company classified the corporate administration building as held for sale and did not record depreciation expense relative to the corporate administrative building during the 2017 fourth quarter. The carrying value of the property was approximately $1.6 million at December 31, 2017. In February 2018, the Company sold this property for $1.8 million.

Leases

The Company is obligated under a number of short and long-term operating leases, primarily for the rental of office space, office equipment, and for automobiles in our European operations. In instances where the Company has negotiated leases that contain rent holidays or escalation clauses, the expense for those leases is recognized monthly on a straight-line basis over the term of the lease.

Goodwill

The goodwill recorded on the Company's consolidated balance sheet at December 31, 2018 relates to the acquisition of Soft Company in the 2018 first quarter. In accordance with current accounting guidance for “Intangibles - Goodwill and Other,” the Company performs goodwill impairment testing at least annually (in the Company’s fourth quarter), unless indicators of impairment exist in interim periods.

The changes in the carrying amount of goodwill for the year ended December 31, 2018 are as follows:

(amounts in thousands)
Balance at December 31, 2017	$	—
Acquired goodwill		12,720
Foreign currency translation		(1,056	)
Balance at December 31, 2018	$	11,664

Acquired Intangibles Assets

Acquired intangible assets at December 31, 2018 consist of the following:

(amounts in thousands)	Estimated Economic Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Trademarks	2 years	$	686	$	300	$	386
Customer relationships	13 years		5,951		401		5,550
Total		$	6,637	$	701	$	5,936

Estimated amortization expense for fiscal 2019 and the five succeeding fiscal years and thereafter is as follows (amounts in thousands):

Year	Annual Amortization
2019	$	801
2020		501
2021		458
2022		458
2023		458
Thereafter		3,260
Total	$	5,936

Income Taxes

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized; (6) creating the base erosion anti-abuse tax (BEAT), a new minimum tax; (7) creating a new limitation on deductible interest expense; and (8) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.

Accounting Standards Codification (ASC) 740, Income Taxes, requires companies to recognize the effect of the tax law changes in the period of enactment. However, the SEC staff issued Staff Accounting Bulletin (SAB) 118, which allows companies to record provisional amounts during a measurement period that is similar to the measurement period used when accounting for business combinations. The Company recorded reasonable estimates when possible in 2017 with the understanding that provisional amounts would be finalized during the measurement period.

As a result, the Company has completed its accounting for the provisions of the Tax Act as follows:

Deferred tax assets and liabilities: The Company remeasured certain deferred tax assets and liabilities based on the federal rate at which they are expected to reverse in the future, which is generally 21%. The Company also remeasured the state rate at which certain deferred tax assets and liabilities are expected to reverse in the future associated with the reduction in the future federal benefit from state deferred tax assets and liabilities from 34% to 21%. The provisional amount recorded related to the remeasurement of the Company's deferred tax balance was a tax expense of $1.7 million. The Company has concluded its analysis of all aspects of the Tax Act relating to compensation expense and determined that there is no adjustment needed to the provisional amount at December 31, 2018. Since there is no change from the provisional amount, there are no measurement period adjustments recorded with respect to this item.

The Company made a policy election with respect to its treatment of potential global intangible low-taxed income (GILTI) to account for taxes on GILTI as incurred at December 31, 2018.

Foreign tax effects: The one-time transition tax is based on the Company's total post-1986 earnings and profits (E&P) that were previously deferred from U.S. income taxes. The Company recorded a provisional amount of zero as of December 31, 2017, based on the Company’s estimation that accumulated post-1986 earnings of the Company’s foreign subsidiaries is less than zero. As of September 28, 2018, the Company has completed its analysis of the accumulated post-1986 earnings of the Company’s foreign subsidiaries, and has confirmed that the aggregate amount of such earnings is less than zero. Accordingly, the Company has determined that the final amount of the transition tax liability is zero. Since there is no change from the provisional amount, there are no measurement period adjustments recorded with respect to this item.

The Company has not recorded a U.S. deferred tax liability for the excess book basis over the tax basis of its investments in foreign subsidiaries as these amounts continue to be indefinitely reinvested in foreign operations.

The Company provides for deferred income taxes for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. In assessing the realizability of deferred tax assets, management considers within each tax jurisdiction, whether it is more likely than not that some portion or all of the deferred tax assets will not be realized, or that a valuation allowance is required. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax-planning strategies in making this assessment. Based on the Company’s recent history of US losses for tax purposes and uncertain profitability in future years and assessment of the factors discussed above, management has determined that it is more likely than not that it will not realize its U.S. deferred tax assets, and accordingly a full valuation allowance has been recorded against these assets. Additionally, management has determined that a valuation allowance is no longer necessary against its U.K. and India deferred tax assets. The total valuation allowance recorded against these deferred tax assets is $5.6 million, a net increase of $3.1 million during the year, which was recorded as income tax expense in the consolidated statement of operations. The valuation allowance is further discussed in note 5, “Income Taxes.” The Company recognizes, as applicable, accrued interest and penalties related to unrecognized tax benefits (if any) in tax expense.

The Company establishes an unrecognized tax benefit based upon the anticipated outcome of tax positions taken for financial statement purposes compared with positions taken on the Company’s tax returns. The Company records the benefit for unrecognized tax benefits only when it is more likely than not that the position will be sustained upon examination by the taxing authorities. The Company reviews its unrecognized tax benefits on a quarterly basis. Such reviews include consideration of factors such as the cause of the action, the degree of probability of an unfavorable outcome, the Company’s ability to estimate the liability, and the timing of the liability and how it will impact the Company’s other tax attributes.

In January 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220). Reclassification of Certain Tax Effects from accumulated other comprehensive income (AOCI), which gives entities the option to reclassify to retained earnings the tax effects resulting from the Tax Act related to items in AOCI that the FASB refers to as having been stranded in AOCI. The Company must adopt this guidance for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. The guidance requires new disclosures regarding a company’s accounting policy for releasing the tax effects in AOCI and permits the company the option to reclassify to retained earnings the tax effects resulting from the Tax Act that are stranded in AOCI. The Company reclassified approximately $0.3 million to retained earnings due to the adoption of ASU 2018-02 in the 2018 fourth quarter.

Equity-Based Compensation

The Company records the fair value of equity-based compensation expense for all equity-based compensation awards granted and recognizes the cost in the Company’s income statement over the periods in which an employee or director is required to provide the services for the award. Compensation cost is not recognized for employees or directors that do not render the requisite services. The Company recognized the expense for equity-based compensation in its 2018, 2017, and 2016 statements of operations on a straight-line basis based upon awards that are ultimately expected to vest. See note 10, “Equity-Based Compensation.”

Net Income (Loss) Per Share

Basic and diluted earnings (loss) per share (EPS) for the years ended December 31, 2018, 2017, and 2016 are as follows:

For the year ended	Net Income (loss)			Weighted Average Shares		Earnings (loss) per Share
(amounts in thousands, except per-share data)
December 31, 2018
Basic EPS	$	(2,817	)		13,805	$	(0.20	)
Dilutive effect of outstanding equity instruments		—			—		—
Diluted EPS	$	(2,817	)		13,805	$	(0.20	)
December 31, 2017
Basic EPS	$	806			15,055	$	0.05
Dilutive effect of outstanding equity instruments		—			269		—
Diluted EPS	$	806			15,324	$	0.05
December 31, 2016
Basic EPS	$	(34,638	)		15,593	$	(2.22	)
Dilutive effect of outstanding equity instruments		—			—		—
Diluted EPS	$	(34,638	)		15,593	$	(2.22	)

Weighted-average shares represent the average number of issued shares less treasury shares and shares held in the Stock Trusts in 2016, and for the basic EPS calculations, unvested restricted stock.

Certain options representing 1.1 million, 1.2 million, and 1.9 million shares of common stock were outstanding at December 31, 2018, 2017, and 2016, respectively, but were not included in the computation of diluted earnings per share as their effect on the computation would have been anti-dilutive.

Accumulated Other Comprehensive Loss

The components that comprised accumulated other comprehensive loss on the consolidated balance sheets at December 31, 2018 and 2017 are as follows:

(amounts in thousands)	2018			2017
Foreign currency translation adjustment, net of taxes	$	(8,022	)	$	(5,963	)
Implementation of accounting standards		(263	)		—
Pension loss, net of tax of $0 in 2018, and $527 in 2017		(6,326	)		(7,713	)
Accumulated other comprehensive loss	$	(14,611	)	$	(13,676	)

During 2018, 2017, and 2016, actuarial losses were amortized to expense as follows:

(amounts in thousands)	2018		2017			2016
Amortization of actuarial losses	$	277	$	322		$	285
Income tax		—		(57	)		(63	)
Net of tax	$	277	$	265		$	222

The amortization of actuarial losses is included in determining net periodic pension cost. See note 7, "Deferred Compensation Benefits" for additional information.

Foreign Currency

The functional currency of the Company’s foreign subsidiaries is the applicable local currency. The translation of the applicable foreign currencies into U.S. dollars is performed for assets and liabilities using current exchange rates in effect at the balance sheet date, for equity accounts using historical exchange rates, and for revenue and expense activity using the applicable month’s average exchange rates. The Company recorded nominal losses in 2018, 2017, and 2016 from foreign currency transactions for balances settled during the year or intended to be settled as of each respective year-end.

Guarantees

The Company has a number of guarantees in place in our European operations which support office leases and performance under government projects. These guarantees totaled approximately $2.7 million and $1.1 million at December 31, 2018 and 2017, respectively, and generally have expiration dates ranging from January 2019 through December 2024.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," ("ASU 2014-09"). On January 1, 2018, the Company adopted Topic 606 using the cumulative effect method and applied the requirements of the new standard to only projects that were open as of January 1, 2018. Results for the reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.

The Company recorded a net positive adjustment to beginning retained earnings of less than $0.1 million and a corresponding amount to unbilled receivables as of January 1, 2018 due to the cumulative impact of adopting Topic 606, primarily related to a change in the identification of performance obligations on certain projects. In addition, the Company evaluated its principal and agent conclusions when more than one party is involved in providing goods or service to a customer. The Company recorded approximately $4.6 million, or 1.3% of our 2018 year-to-date revenue on a gross basis, which would have been recorded on a net basis under our historic accounting under Topic 605. The Company reported $358.8 million of revenue in 2018 under Topic 606 and the Company would have reported approximately $354.2 million of revenue under Topic 605.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. Topic 842 supersedes the previous leases standard, ASC 840, Leases. This guidance is effective for reporting periods beginning after December 15, 2018; however, early adoption is permitted. The Company will adopt the new lease standard on January 1, 2019 using the modified retrospective transition approach and will elect the transition method to apply the new lease standard as of the January 1, 2019 adoption date. The Company will continue to report and present comparative periods prior to the adoption date in accordance with ASC 840, including disclosures. The new standard provides a number of optional practical expedients in transition. The Company expects to elect the ‘package of practical expedients’, which permits the Company not to reassess under the new standard prior conclusions about lease identification, lease classification and initial direct costs. The Company also expects to elect the use-of-hindsight practical expedient and it does not expect to elect the practical expedient pertaining to land easements, as it is not applicable. The Company expects a material increase in our assets and liabilities due to the recognition of right-of-use assets and lease liabilities. However, the Company does not expect the new lease standard to have a material impact on its consolidated statements of operations and its consolidated statements of cash flows. The Company does not expect the new lease standard to affect its compliance with financial covenants associated with its debt agreement.

In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715),” which requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. The amendments in this Update are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The amendments in this Update should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement. The Company has adopted this standard and has applied it retrospectively in the 2018 first quarter. Upon adoption, the Company increased direct costs by approximately $0.1 million and reduced selling, general, and administrative expenses by $0.3 million and increased interest and other expenses by approximately $0.2 million for the 2017 year-to-date period. The Company also reduced selling, general, and administrative expenses by $0.4 million with a corresponding increase to interest and other expenses for the 2016 year-to-date period.

In January 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from accumulated other comprehensive income (AOCI),” which gives entities the option to reclassify to retained earnings the tax effects resulting from the Act related to items in AOCI that the FASB refers to as having been stranded in AOCI. The Company must adopt this guidance for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. The guidance, when adopted, will require new disclosures regarding a company’s accounting policy for releasing the tax effects in AOCI and permit the company the option to reclassify to retained earnings the tax effects resulting from the Act that are stranded in AOCI. The Company reclassified approximately $0.3 million to retained earnings due to the adoption of ASU 2018-02 in the 2018 fourth quarter.

Subsequent Event

On February 6, 2019, the Company acquired 100% of the equity of Tech-IT PSF S.A. for approximately $9.7 million. The acquisition was funded using cash on hand and borrowings under the Credit and Security Agreement. The Luxembourg-based Tech-IT is a leading provider of software and hardware services, including consulting, infrastructure and software design and development, infrastructure integration, project management, and training. The acquisition of Tech-IT is expected to enable the Company to strengthen its market position in Luxembourg and broaden its portfolio to offer complete end-to-end IT solutions.